Introducing Sustainability-Linked KPIs at a Health Care Company
In September 2021, Barings was approached to look at a new transaction for a health care company providing rehabilitation and mental health services. Our due diligence process had highlighted previous care quality issues at certain health facilities within the group. As such, the company had been rated poorly in the social category under Barings’ internal ESG ratings criteria.
During the debt syndication process, the company intended to include sustainability KPIs in its finance terms to reduce interest costs on achievement of targets, including reduced carbon emissions at facilities. Barings actively engaged with arrangers, senior management and the financial sponsor to push for the addition of KPIs linked to quality-of-patient-care metrics, given this was viewed as a key sustainability risk area. Ultimately, the engagement was successful in achieving the addition of the requirement for independent third-party quality ratings on medical facilities to meet certain predetermined thresholds. A failure to meet targets would result in higher interest costs for the company.
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