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Understanding stewardship in private debt 

by and

3 Sep 2025

As private debt continues to grow, its role in shaping sustainable economies has become more pronounced and effective steward becomes more important.

As private debt continues to grow, its role in shaping sustainable economies has become more pronounced and effective steward becomes more important.

Stewardship is emerging as an important lever for private debt investors to mitigate sustainability risks and promote long-term value creation. Private debt presents some unique dynamics relative to other asset classes, but stewardship remains both possible and necessary.

The UN-Supported Principles for Responsible Investment’s guidance, developed in collaboration with 120 industry practitioners, defines stewardship in private debt as “the use by investors of their influence to maximise long-term value, including the value of common economic, social and environmental assets, on which returns and clients’ and beneficiaries’ interests depend”.

The guidance refers to a broad set of tools tailored to the structure and nature of private debt investments.

This work builds on previous PRI guides and responds to growing demand for clarity on how stewardship can be effectively embedded across private debt strategies, focusing principally on direct lending.

The guidance sets out practical tools for private debt investors to apply across the investment lifecycle. The tools are set in the context of challenges to implementation and what are termed spectrums of influence – the factors which determine the degree of influence different types of investor have.

Key challenges 

The guidance articulates several challenges private debt investors must overcome to deliver effective stewardship.

One major challenge is timing constraints. In competitive markets, the fast-paced nature of deals limits the time available for lenders to establish stewardship goals or negotiate terms before transactions are finalised.

Aligning all stakeholders is another significant hurdle. Private debt transactions involve multiple parties, each with different levels of willingness to engage.

The responsiveness of borrowers is crucial and depends on factors such as the maturity of the business, its capacity to engage, the lender’s importance in the capital structure, and external pressures.

Lenders in private equity sponsored deals should strive to align their stewardship goals with the sponsor’s approach.

Obtaining reliable, high-quality data is often difficult. Less mature borrowers and the absence of standardised reporting models within private markets can lead to drawn out negotiations for disclosure requests.

Debates about the relevance of various sustainability factors across industry sectors complicates the selection of appropriate metrics. While industry initiatives offer standardised templates, further harmonisation is necessary.

Data validation also varies by region and can be costly, hindering the measurement of engagement outcomes.

Finally, the lack of standardised legal approaches to loan covenants and margin ratchets – changes in borrowing costs based on sustainability KPIs – can result in prolonged negotiations. Some market participants question the effectiveness of these ratchets, given the challenges in aligning on and demonstrating a meaningful reduction or increase in borrower risk related to sustainability factors.

Despite these challenges, the PRI guidance sets out the characteristics of certain deals – the spectrums of influence – whereby private debt investors may have more stewardship influence to overcome the challenges and deploy the tools available.

Stewardship tools 

Investors in private debt have a growing suite of tools to exercise stewardship, tailored to the asset class’s structure as described in the guidance.

These tools enable some degree of action to be taken by all investors, regardless of challenges or limits to influence, and can be deployed across different stages of the investment lifecycle.

Providing Education and Resources: Investors can support borrowers by offering sustainability-related guidance, templates, and training. This helps build internal capacity, especially for smaller or less mature companies. Educational initiatives can include sharing best practices, hosting workshops, or providing access to sustainability frameworks and reporting tools.

Stakeholder Engagement: Engaging with borrowers, co-lenders, private equity sponsors and other stakeholders is central to stewardship. Dialogue can focus on sustainability risks, opportunities, and performance improvement.

Investors may also engage with industry bodies or regulators to promote responsible lending practices and systemic change.

Sustainability-Related Margin Ratchets and Covenants: Loan agreements can include sustainability-linked terms, such as margin ratchets that adjust the interest paid on the loan based on sustainability performance.

Covenants may require borrowers to meet specific sustainability targets or provide regular disclosures. These mechanisms align financial incentives with responsible behaviour and create enforceable accountability.

Advocacy: Investors can use their voice to advocate for better sustainability standards and practices within the private debt ecosystem. This includes engaging with policymakers, contributing to industry consultations, and supporting initiatives that promote transparency, data quality, and stewardship norms.

Together, these tools enable investors to drive meaningful sustainability outcomes and embed stewardship into private debt strategies.

Investment lifecycle stewardship integration 

Effective stewardship in private debt requires integration across the entire investment lifecycle—from origination to exit. The guidance provides a framework for embedding stewardship at each stage:

  • Origination: The guidance refers to this stage of the deal lifecycle as the opportunity to establish systems that facilitate efficient and effective stewardship upon deal sourcing. This might involve internal training, developing materiality frameworks and templates, or drafting standardised sustainability-related clauses to include in loan documents.
  • Due Diligence and Investment Approval: This phase offers a key opportunity to evaluate borrower sustainability practices, identify gaps, and negotiate terms that support stewardship. Engagement at the due diligence stage is essential to align stakeholders and facilitate productive engagement throughout the holding period.
  • Holding Period: Ongoing dialogue with borrowers throughout the holding period is important in order to maintain an understanding of sustainability risks and opportunities at the borrower, track sustainability performance, provide feedback and support continuous improvement.
  • Exit: Exit provides the opportunity to re-visit stewardship objectives, share lessons learned and consider re-financing or denying further debt to the borrower as a form of escalation.

The guidance underscores that stewardship is not a one-off activity but a continuous process. By integrating sustainability throughout the lifecycle, investors can enhance resilience, mitigate risks, and contribute to positive outcomes.

The way forward 

The PRI’s guidance marks a significant step in advancing stewardship in private debt. It calls on investors to drive forward industry standards and embrace stewardship as a strategic imperative.

Further industry collaboration is required to improve alignment between lenders and sponsors and progress the quality and use of sustainability data.

As private debt continues to grow, its role in shaping sustainable economies becomes more pronounced. Stewardship is a mechanism to promote long term sustainable value creation, and this guidance provides a practical roadmap for doing so.

Aditya Vikram is head of private equity and private debt, at the PRI and Edwin Whitehead is director of sustainable investment at Redington.

The report is Stewardship in private debt: a guide for general and limited partners.

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