Horizon Capital, a Swiss investment management company, has unveiled a new sustainable commodity trade finance fund, which it will launch on April 5.
The fund, which will start at US$10-15mn in size, will finance commodity trade transactions that contribute to at least one of the sustainable development goals (SDGs), with eligible borrowers having to demonstrate strong environmental, social and governance (ESG) performance.
“We’ll put an ESG overlay on various steps of the investment process,” says Sébastien Max, managing partner at Horizon Capital, who tells GTR that the fund will explicitly exclude energy financing and focus solely on agriculture and metals.
Horizon Capital currently has a series of trade finance funds specialising in short-term senior secured lending to SMEs located in Europe, Asia and North America. Transactions are originated by its structuring arm, SCCF. The fund is backed by equity from a range of sources, including wealth managers and insurers, Max says. “In Europe we see good demand for this type of structure, while there’s growing interest from Asia. Our strategy is also attractive for insurance companies because of the solvency ratio, and clearly for an insurance company, sustainable trade finance makes sense.”
Horizon says that, in order to ensure the transactions it finances are sustainable, it will perform “thorough ESG due diligence” on every borrower, with sustainability being an integral part of the overall credit assessment. Because of the nature of the transactions, this assessment will be done in-house, says Max. “External data providers such as Sustainalytics or MSCI only cover public or very large international companies. However, at Horizon Capital, we exclusively work with private companies, moreover of somewhat modest sizes. Thus we cannot rely on these sources to gather relevant data and have to produce it ourselves, at least for all information related to the borrower and the transactions.”
He adds that Horizon intends to engage with its borrowers to promote better supply chain practices, and will include a sustainability clause into the deal structure in order to lock in the borrower’s agreement on the importance of good ESG practices.