Create and monitor ESG criteria with the Debt Tracking application

Learn how to integrate ESG criteria into your Kls Desk's operations.

Context

ESG criteria (for Environmental, Social and Governance) are used to assess the extent to which sustainable development and long-term issues are taken into account in the strategy of the borrower being financed.

These criteria are of an extra-financial nature, and are included in the credit contract as a standard covenant, to be checked by the file manager (or an ESG coordinator). Most often, these “ESG covenants” are indexed to the objective to be achieved, and take the form of a value to be respected (percentage, ratio, quantity).

The arrival of these new criteria adds new elements to the monitoring of an operation, which is not insignificant for the teams in charge.

What to expect from this feature ?

By using Kls to track ESG KPIs, you can :

Automate reminders to your customers of these new covenants
Monitor these new covenants without difficulty or additional resources.
Proactively monitor your customers and support them in achieving their KPIs.
Facilitate your ESG reporting (internal or external) thanks to the data export module.

Setting ESG criteria in Kls:

Once your operation has been created in Kls, go to the “Covenant list framework” tab to set the control indicators.

Creating an ESG criterion is done in the same way as creating a classic covenant or an Agent Action.

Select the “ESG Criteria” type of covenant - this will enable you to easily identify this type of covenant - and complete the fields with the contract information and control conditions.

[DT] - Cadre contractuel ESG (EN)

You can use the control value to set a numerical measurement of any kind:

Tonne of Co2
Number of electric cars
Percentage of recycled material
Etc.

It's up to you to define its meaning in the “Description” field, which will also be visible to your customer.

When entering the impact on margin, you have two options:

1. Margin impact is linked to the number of ESG KPIs respected/reached

In this case, don't enter the margin impact at KPI level, and create an additional covenant called, for example, “ESG criteria achievement control - Entered by Agent”.

In this way, you can set margin impacts according to the number of ESG criteria met.

Example: Each indicator is independent and will impact the margin by +0.02% or -0.02% if it is respected or not. Four possible scenarios:

If all 3 indicators are met: - 0.06% on margin

If 2 of the 3 indicators are met: - 0.02% on margin (-0.02 - 0.02 + 0.02)

If 1 of the 3 indicators is met: + 0.02% margin (-0.02 + 0.02 + 0.02)

If none of the indicators are met: + 0.06% on margin

Once you've retrieved the results of all the KPIs checked on the operation, you can then complete this last covenant and benefit from better visibility on the new margin impacts to be applied.

[DT] contrôle engagement ESG impact marge (EN)

2. Margin impact is independent on each ESG KPI

In some contracts, ESG criteria may be of different importance, and therefore not have the same proportionality.

In this case, you'll need to set the margin impact for each KPI, so as to accurately reflect the proportional impact of each criterion monitored.

You can, however, create an additional reminder to consolidate the various results and communicate the new final margin rate.

Summary

By using Kls, you can facilitate the monitoring and control of your ESG criteria, whether for syndicated operations, impact loans, or any other financial operation involving the control of ESG KPIs.

[DT] cadre contractuel ESG - liste engagement (EN)

You can also use the Kls tracking tool to set reminders for ESG trajectory meetings, and thus better manage them with your client.

Finally, thanks to our data export module, you'll be able to feed all your internal and external reporting with data from your various controls, taking into account whether or not you've achieved the various defined KPIs.