Global private capital investment firm The Carlyle Group announced today the launch of a decarbonization-linked financing program, enabling borrowers to access capital with terms tied to their performance on climate-related goals. The program is among the first of its kind in the US private credit market.

Under the new program, borrowers will receive a pricing benefit based on the achievement of decarbonization targets or other climate-related Key Performance Indicators (KPIs). Carlyle said that it will work with borrowers on the assessment and monitoring of appropriate KPIs, and that the firm’s ESG team will provide support and expertise to help borrowers achieve climate-related goals.

Mark Jenkins, Carlyle’s Head of Global Credit, said:

“We believe that strong ESG competencies are a hallmark of management excellence, and that successful decarbonization requires meaningful engagement between investors and businesses. Through this program, we seek to drive value by helping borrowers improve their competitive positioning, while building on Carlyle’s long history of ESG integration.”

The launch of the new program follows the establishment earlier this year by Carlyle of a commitment to achieve net zero greenhouse gas emissions by 2050 or sooner across its investments, along with interim emissions reduction targets for its majority-owned corporate private equity, power and energy portfolio companies and a goal to have 75% of its portfolio companies’ Scope 1 and 2 emissions covered by Paris-aligned climate goals by 2025.

Megan Starr, Carlyle’s Global Head of Impact, said:

“This innovative decarbonization-linked financing program provides another avenue for Carlyle to support its investment portfolios in a changing world, and drive meaningful action on the transition to a lower carbon future. As a non-controlling asset class, credit naturally has lagged private equity’s ability to collect ESG data and incentivize ESG improvements. This new approach addresses both challenges, and we believe it may result in significant carbon emissions reductions within our portfolio over time.” 

Carlyle announced that it has recently closed its first two debt financings with decarbonization-linked terms, supporting Morgan Stanley Capital Partners’ buyout of residential lawncare services provider Fairway Lawns, and American Industrial Partners’ refinancing for portfolio company The Carlstar Group.