Over the past few months I've engaged with a range of private credit firms, ranging from 1bn to over 100bn in AUM, and one central theme continues to reoccur: improving borrower engagement is essential for the success of a meaningful ESG reporting exercise. The discussions underscored three key takeaways that can help streamline this process, which we wanted to share to help you improve your data quality and coverage.
1. Clear Communication is the Foundation of Effective Engagement
One of the most important insights was the value of clear communication. Lenders must not only articulate what they need from borrowers but also explain why they need it. By providing context, lenders can foster a more cooperative relationship, leading to more timely and accurate responses. When borrowers understand the purpose behind data requests, they are more likely to prioritize and fulfill these requests efficiently. This transparency reduces misunderstandings and builds trust, creating a smoother engagement process for the ESG teams who might not be as connected as the deal teams, or have as much leverage as they would in a buy-out fund.
2. Embracing Technology for Mutual Benefit
Technology can alleviate many of the pain points in the data exchange process. By adopting digital platforms and tools, lenders can simplify and automate data collection, making it less cumbersome for borrowers, especially with new AI features to scrape data from policy docs and populate lender DDQs. This not only saves time but also minimizes errors in the data submission process. Borrowers benefit from a streamlined experience, while lenders receive more consistent and accurate data.
3. Focus on Materiality
Another crucial takeaway is the importance of focusing on what truly matters. Lenders should critically assess their data requests, ensuring they ask only for information that is material to their analysis and that of their investors. Overloading borrowers with irrelevant questions can lead to poor data quality and coverage. By narrowing the focus to what is essential, lenders can reduce the burden on borrowers, resulting in more precise and useful data collection.
To sum things up, enhancing borrower engagement is about clear communication, leveraging technology, and focusing on what truly matters. By implementing these strategies, private credit houses can foster better relationships with borrowers and achieve more accurate ESG data collection.
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