Playbook: Adopting Funding Trends & Deal Flow in 90 Days

In 2024, climate-focused private credit in Europe surged to €47 billion in deployed capital, representing a 34% year-over-year increase and fundamentally reshaping how sustainability-driven enterprises access growth capital. For sustainability leads navigating this rapidly evolving landscape, understanding the metrics that drive deal flow—and knowing precisely how to measure them—has become the difference between securing transformative funding and watching competitors capture market share. This playbook provides a systematic 90-day framework for adopting climate-focused private credit strategies, with particular emphasis on the EU regulatory environment and the emerging opportunities in traceability, resilience infrastructure, and biomaterials.

Why It Matters

The European climate finance ecosystem has undergone a structural transformation since the implementation of the EU Taxonomy Regulation and the Corporate Sustainability Reporting Directive (CSRD). Private credit, once a niche alternative to traditional bank lending, has emerged as the dominant vehicle for mid-market climate investments, particularly for companies requiring €10–150 million in growth capital. According to the European Investment Fund's 2024 Climate Finance Report, private credit funds focused on sustainability objectives deployed €47.3 billion across 892 transactions in the EU, with average deal sizes increasing from €38 million in 2023 to €53 million in 2024.

This shift reflects several converging forces. Traditional banks, constrained by Basel III capital requirements and increasingly stringent stress-testing for climate-related financial risks, have retreated from lending to capital-intensive sustainability projects. Simultaneously, the European Green Deal's investment gap—estimated at €620 billion annually through 2030—has created unprecedented demand for alternative capital sources. Private credit funds, with their flexibility in structuring, longer investment horizons, and appetite for complexity, have filled this void.

For sustainability leads, the implications are profound. Climate-focused private credit providers evaluate opportunities through a fundamentally different lens than traditional equity investors or commercial banks. They prioritize predictable cash flow generation, asset-backed security structures, and demonstrable impact metrics aligned with EU Taxonomy criteria. Understanding these evaluation frameworks—and building the internal capabilities to meet their requirements—has become essential for accessing this €47+ billion capital pool.

The 2024-2025 period has also witnessed significant evolution in deal terms. Interest rate spreads for Taxonomy-aligned transactions have compressed by approximately 75-125 basis points compared to non-aligned equivalents, creating meaningful cost-of-capital advantages for companies with robust sustainability credentials. Moreover, covenant structures increasingly incorporate sustainability-linked margin ratchets, rewarding borrowers who achieve predefined environmental KPIs with reduced financing costs.

Key Concepts

Climate Private Credit

Climate private credit refers to non-bank lending facilities specifically structured to finance climate mitigation and adaptation activities. Unlike traditional private credit, these instruments incorporate explicit environmental criteria in their underwriting frameworks, typically requiring alignment with the EU Taxonomy's technical screening criteria. Climate private credit spans multiple instrument types, including senior secured loans, unitranche facilities, mezzanine financing, and asset-backed structures. The defining characteristic is the integration of climate performance metrics into both deal selection and ongoing covenant monitoring.

In the EU context, climate private credit has become particularly significant for three categories of borrowers: established industrial companies undertaking decarbonization CAPEX programs, growth-stage climate technology firms requiring scale-up capital, and infrastructure developers financing renewable energy, grid modernization, or circular economy facilities. The market has matured significantly since 2022, with standardized documentation frameworks emerging around Sustainability-Linked Loan Principles (SLLP) and Green Loan Principles (GLP) published by the Loan Market Association.

Traceability

Traceability encompasses the systems, technologies, and governance frameworks enabling end-to-end visibility across value chains. In climate finance contexts, traceability serves dual purposes: demonstrating the environmental credentials of funded activities and providing the data infrastructure required for impact measurement and reporting. Advanced traceability systems integrate IoT sensors, blockchain-based provenance tracking, and AI-powered analytics to generate auditable records of material flows, emissions profiles, and sustainability certifications.

For private credit transactions, traceability capabilities have become a critical underwriting criterion. Lenders increasingly require borrowers to demonstrate robust chain-of-custody documentation for Taxonomy-aligned activities, particularly in sectors such as biomaterials, sustainable forestry, and circular manufacturing. The 2024 implementation of the EU Deforestation Regulation has further elevated traceability requirements, with non-compliant supply chains facing exclusion from EU markets.

CAPEX

Capital expenditure (CAPEX) represents the investments in physical assets, equipment, and infrastructure required to achieve sustainability objectives. In climate finance, CAPEX analysis distinguishes between maintenance capital (sustaining existing operations), transition capital (decarbonizing incumbent assets), and growth capital (expanding green capacity). Private credit providers evaluate CAPEX programs across multiple dimensions: technical feasibility, regulatory alignment, payback periods, and contribution to Taxonomy-aligned revenue generation.

The EU Taxonomy's CAPEX ratio—measuring the proportion of total capital expenditure directed toward sustainable activities—has become a benchmark metric for climate-focused lenders. Companies demonstrating CAPEX ratios exceeding 30% for Taxonomy-aligned activities typically access preferential financing terms, reflecting the reduced transition risk and enhanced regulatory positioning these investments provide.

Resilience

Resilience in climate finance contexts refers to the capacity of physical assets, business operations, and financial structures to withstand climate-related shocks and stresses. The EU Taxonomy's "do no significant harm" criteria require funded activities to incorporate climate resilience assessments, particularly for investments with operational lifetimes extending beyond 2050. Private credit underwriters evaluate resilience across three dimensions: physical risk exposure (acute events such as floods and wildfires, chronic shifts in temperature and precipitation), transition risk management (policy, technology, and market shifts), and adaptive capacity (the ability to modify operations in response to changing conditions).

For borrowers, demonstrating resilience requires integrating climate scenario analysis into financial projections, identifying material physical and transition risks, and articulating credible adaptation strategies. The Task Force on Climate-related Financial Disclosures (TCFD) framework provides the standard methodology for these assessments, with European private credit providers increasingly requiring TCFD-aligned disclosures as a condition of funding.

Biomaterials

Biomaterials encompass materials derived from biological sources that can substitute for fossil-based or mineral-intensive alternatives. Within climate finance, biomaterials represent a high-growth investment category, with EU private credit deployment to the sector reaching €6.2 billion in 2024. Key subsectors include bio-based polymers, sustainable packaging, engineered timber, mycelium composites, and bio-based chemicals. The investment thesis centers on the dual drivers of regulatory pressure (single-use plastics bans, circular economy mandates) and corporate procurement commitments (sustainable packaging targets from major FMCG companies).

Private credit structures for biomaterials companies typically incorporate feedstock security provisions, offtake agreement requirements, and technology risk mitigation measures. Given the capital intensity of scaling biomaterials production—typical facilities require €50–200 million in CAPEX—private credit has become the preferred financing instrument for growth-stage companies in this sector.

What's Working and What Isn't

What's Working

Sustainability-Linked Margin Ratchets: The integration of sustainability performance targets (SPTs) into loan pricing has proven highly effective at aligning borrower and lender incentives. Transactions structured with margin adjustments of 15-25 basis points based on achievement of predefined KPIs—such as emissions intensity reductions, renewable energy procurement targets, or waste diversion rates—demonstrate measurably better sustainability outcomes than conventional facilities. Analysis of 127 European sustainability-linked loans closed in 2024 found that borrowers subject to SPT-based pricing achieved an average 23% outperformance against their sustainability targets compared to facilities without such mechanisms.

Asset-Backed Structures for Renewable Infrastructure: Private credit facilities secured against operational renewable energy assets have established a robust track record, with default rates below 0.8% since 2019. The predictability of contracted cash flows from power purchase agreements, combined with the tangible asset collateral, has enabled competitive pricing and attracted institutional capital at scale. This model has expanded beyond solar and wind to encompass battery storage, EV charging infrastructure, and district heating networks, with €12.4 billion deployed across 234 transactions in 2024.

Blended Finance Partnerships: Collaborations between private credit funds and development finance institutions (DFIs) have unlocked capital for higher-risk climate projects that would otherwise struggle to secure commercial financing. The European Investment Bank's climate guarantee programs, which provide first-loss protection to private lenders, have catalyzed €8.7 billion in additional private capital since 2022. Similarly, the European Fund for Sustainable Development Plus (EFSD+) has deployed €1.2 billion in concessional capital to de-risk private credit investments in climate adaptation and emerging climate technologies.

Digital MRV Integration: Investments in digital measurement, reporting, and verification (MRV) infrastructure have significantly improved the bankability of climate projects. Borrowers deploying automated emissions monitoring, satellite-based verification, and blockchain-enabled carbon accounting systems report 40% faster due diligence processes and 18% lower transaction costs compared to those relying on manual reporting. Private credit providers increasingly require digital MRV capabilities as a condition of funding, recognizing the reduced monitoring burden and enhanced data quality these systems provide.

What Isn't Working

Taxonomy Interpretation Inconsistency: Despite the EU Taxonomy's goal of creating a standardized classification system, significant variation persists in how private credit providers interpret technical screening criteria. A 2024 survey of 43 European climate-focused debt funds found that 67% had rejected at least one transaction due to Taxonomy alignment disputes that other lenders deemed acceptable. This interpretation inconsistency creates uncertainty for borrowers, increases transaction costs, and potentially constrains capital deployment to genuinely sustainable activities.

Transition Finance Gaps for Hard-to-Abate Sectors: While private credit has proven effective for renewable energy and efficiency projects, significant funding gaps persist for decarbonization investments in steel, cement, chemicals, and heavy transport. These sectors require patient capital with 15–25 year horizons, technology risk tolerance, and comfort with novel offtake structures—characteristics that challenge the typical 5–7 year investment mandates of most private credit funds. Only 8% of EU climate private credit deployed in 2024 targeted hard-to-abate industrial sectors, despite these industries accounting for 35% of EU industrial emissions.

SME Access Constraints: The minimum deal sizes favored by institutional private credit funds—typically €25 million and above—effectively exclude small and medium enterprises from this capital pool. SMEs represent 99% of EU businesses and account for significant aggregate climate impact, yet transaction economics rarely support the due diligence and monitoring costs required for smaller facilities. While government guarantee programs have attempted to address this gap, utilization rates remain below 60% due to complexity, processing delays, and awareness limitations.

Impact Measurement Fragmentation: The proliferation of competing impact measurement frameworks—including IRIS+, IMP, SDG alignment methodologies, and proprietary fund-specific approaches—has created confusion and increased reporting burdens for borrowers. Companies seeking climate-focused private credit frequently report needing to produce three or more distinct impact reports for different prospective lenders, with limited interoperability between frameworks. This fragmentation diverts resources from actual sustainability implementation and creates barriers to market entry for less-resourced borrowers.

Key Players

Established Leaders

BNP Paribas Asset Management: Europe's largest asset manager with dedicated climate private credit capabilities, having deployed €8.3 billion through its Energy Transition and Climate Infrastructure platforms since 2021. The firm pioneered sustainability-linked covenant structures in European private debt markets.

Allianz Global Investors: A leading institutional investor in climate infrastructure debt, with €6.7 billion allocated to renewable energy and sustainable infrastructure credit facilities across the EU. Known for innovative risk-sharing structures with development banks and multilateral institutions.

AXA Investment Managers: Manages €5.4 billion in climate-focused private debt strategies, with particular strength in transition finance for industrial decarbonization. Their impact framework integrates physical climate risk assessment with Taxonomy alignment screening.

Schroders Greencoat: Specialist renewable energy and climate infrastructure investor with €4.2 billion in private credit deployments. Recognized for sophisticated asset-backed structures and long-dated facilities aligned with infrastructure project lifecycles.

Tikehau Capital: European alternative asset manager with €3.8 billion committed to energy transition private credit. Their Direct Lending team has particular expertise in growth-stage climate technology financing and biomaterials sector investments.

Emerging Startups

Climatiq: Berlin-based climate data infrastructure provider whose API enables real-time carbon footprint calculation for financial transactions. Increasingly integrated into private credit underwriting workflows for automated Taxonomy alignment verification.

Sylvera: London-headquartered carbon credit rating and monitoring platform using satellite imagery and machine learning to verify nature-based carbon projects. Their data services support private credit due diligence for forestry and land-use investments.

Plan A: German sustainability management software company whose platform enables automated CSRD-compliant reporting and Taxonomy alignment tracking. Widely adopted by mid-market borrowers seeking to meet private credit disclosure requirements.

Persefoni: Climate management and accounting platform providing institutional-grade carbon accounting for financial portfolios. Their financed emissions calculation capabilities support Scope 3 reporting for private credit providers.

Patch: Amsterdam-based carbon removal marketplace connecting private credit-funded climate projects with corporate buyers. Their platform facilitates offtake agreements that enhance project bankability and de-risk private credit transactions.

Key Investors & Funders

European Investment Fund (EIF): The EU's specialist SME and climate finance institution, providing guarantees and co-investments that have mobilized €12.4 billion in private climate credit since 2020. Their Climate and Infrastructure Fund supports first-time and emerging fund managers.

Green Investment Group (Macquarie): Global green infrastructure investor with €9.2 billion deployed in European climate assets. Active as both direct lender and anchor investor in third-party climate credit funds.

Breakthrough Energy Catalyst: The EU's partner in deploying €1 billion in concessional capital to de-risk first-of-a-kind climate technology projects. Their catalytic capital enables private credit facilities for pre-commercial technologies.

KfW Capital: German development bank subsidiary providing €2.3 billion in climate-focused fund investments and co-investments. Key supporter of domestic and pan-European climate private credit strategies.

CDP: While not a direct investor, CDP's disclosure platform and scoring system fundamentally shape capital allocation in EU climate finance. Private credit providers increasingly require CDP disclosure as a baseline underwriting criterion.

Examples

Example 1: Northvolt Battery Manufacturing Facility Financing

Swedish battery manufacturer Northvolt secured a €1.6 billion green debt package in 2024 to finance its third European gigafactory in Schleswig-Holstein, Germany. The facility, structured as a senior secured term loan with sustainability-linked margin adjustments, demonstrated several best practices in climate private credit deployment. The transaction incorporated Taxonomy alignment verification across all six environmental objectives, third-party verification of lifecycle emissions claims, and digital MRV systems enabling real-time production and environmental monitoring. The sustainability-linked pricing mechanism tied interest rate margins to battery production volumes (supporting decarbonization of transport), recycled content percentages (circular economy objectives), and workforce diversity targets. The facility achieved a weighted average cost of debt of 4.2%, approximately 90 basis points below comparable non-green industrial financings, reflecting the competitive advantage of Taxonomy-aligned capital-intensive manufacturing.

Example 2: Ørsted Renewable Hydrogen Infrastructure

Danish energy company Ørsted structured a €850 million project finance facility in 2024 for its FlagshipONE green hydrogen production facility in Sweden. The transaction exemplified the emerging private credit model for hard-to-abate sector decarbonization. Key structural features included 15-year tenors aligned with electrolyzer asset lives, cash flow waterfalls tied to green hydrogen offtake agreements with shipping and steel sector customers, and physical climate resilience covenants requiring ongoing adaptation assessments. Impact metrics integrated into covenant monitoring included hydrogen production volumes (targeting 70,000 tonnes annually), avoided CO2 emissions from fossil hydrogen displacement (projected at 1.2 million tonnes over facility life), and local employment creation. The blended finance structure incorporated €200 million in subordinated capital from the European Fund for Strategic Investments, enabling senior debt pricing 65 basis points below market rates.

Example 3: Veolia Circular Economy Asset Portfolio

French environmental services company Veolia raised €1.2 billion through a diversified private placement in 2024 to refinance and expand its EU circular economy asset portfolio. The transaction, structured as a multi-tranche facility with varying maturities from 7 to 15 years, financed advanced recycling facilities, organic waste-to-biomethane plants, and water recycling infrastructure across 12 EU member states. The underwriting framework applied granular Taxonomy alignment analysis to each asset category, with 94% of funded activities meeting technical screening criteria. Sustainability-linked adjustments were calibrated to portfolio-level KPIs including materials recovery rates (targeting 78% average), renewable energy self-sufficiency (targeting 65% of operational energy needs), and water circularity ratios. The transaction attracted participation from 23 institutional investors, demonstrating deep market appetite for circular economy credit with robust impact credentials.

Action Checklist

• Conduct a comprehensive Taxonomy alignment assessment of current operations and planned CAPEX, identifying activities meeting technical screening criteria across all six environmental objectives
• Implement digital MRV infrastructure enabling automated carbon accounting, real-time emissions monitoring, and auditable data trails for sustainability claims
• Develop a 5-year CAPEX roadmap with explicit quantification of transition investments, Taxonomy-aligned expenditure ratios, and expected impact outcomes
• Establish relationships with 3-5 climate-focused private credit providers through industry conferences, intermediary introductions, and preliminary capability presentations
• Commission third-party verification of sustainability claims and Taxonomy alignment from recognized auditors (EY, PwC, KPMG, Deloitte, or specialized climate verification firms)
• Build internal capacity for TCFD-aligned climate risk assessment, including physical risk exposure mapping and transition scenario analysis
• Structure pilot sustainability-linked facilities with 2-3 existing banking relationships to establish track record and refine SPT calibration methodologies
• Develop standardized impact reporting templates aligned with IRIS+, GRI, and EU Taxonomy disclosure requirements to streamline lender due diligence
• Engage legal counsel with climate finance expertise to review documentation templates and ensure alignment with evolving Sustainability-Linked Loan Principles
• Create a dedicated investor relations function or workstream for sustainability-focused capital providers, including regular impact reporting and stakeholder engagement

FAQ

Q: What minimum deal size do climate-focused private credit funds typically require? A: European climate private credit funds generally target minimum deal sizes of €25-50 million, with the median transaction in 2024 at €53 million. Smaller facilities (€10-25 million) are available through specialized SME-focused vehicles, often supported by EIF guarantees, though these represent less than 15% of market volume. For companies below these thresholds, syndicated facilities combining multiple lenders, or credit facilities from climate-focused banks rather than private credit funds, may offer more accessible pathways to capital.

Q: How do sustainability-linked margin ratchets typically function in practice? A: Sustainability-linked margin ratchets adjust the interest rate spread based on achievement of predefined sustainability performance targets (SPTs). Typical structures incorporate annual testing of 2-4 KPIs, with margin adjustments of 5-15 basis points per target. Ratchets can operate symmetrically (margin increases for missing targets, decreases for exceeding) or asymmetrically (only downward adjustments for achievement). Verification is typically conducted by independent auditors against agreed methodologies. The Sustainability-Linked Loan Principles recommend that SPTs be material, ambitious relative to baseline, and measurable through objective metrics.

Q: What documentation is required to demonstrate EU Taxonomy alignment for private credit transactions? A: Taxonomy alignment documentation typically includes: (1) activity-level mapping demonstrating which Taxonomy-eligible activities the funded enterprise conducts; (2) technical screening criteria compliance evidence showing how activities meet quantitative thresholds for substantial contribution to environmental objectives; (3) "do no significant harm" assessments across all six environmental objectives for each funded activity; (4) minimum safeguards verification confirming alignment with OECD Guidelines, UN Guiding Principles on Business and Human Rights, and ILO core conventions; and (5) ongoing disclosure frameworks specifying how alignment will be monitored and reported throughout the facility's life. Third-party verification from recognized auditors significantly enhances credibility.

Q: How should companies approach private credit providers with novel or first-of-a-kind climate technologies? A: Pre-commercial climate technologies require differentiated approaches to private credit, as standard underwriting frameworks may not accommodate technology risk. Recommended strategies include: (1) securing anchor offtake agreements or guaranteed purchase commitments that de-risk revenue projections; (2) pursuing blended finance structures incorporating concessional capital from DFIs or programs like Breakthrough Energy Catalyst in subordinated tranches; (3) demonstrating technology validation through pilot-scale operations, independent technical due diligence, and performance guarantees; (4) targeting specialist climate technology credit funds with explicit mandates for innovation financing; and (5) considering convertible or equity-linked structures that provide lenders with upside participation commensurate with technology risk assumption.

Q: What are the key differences between climate private credit evaluation criteria and traditional bank lending? A: Climate private credit differs from traditional bank lending across several dimensions. First, underwriting explicitly incorporates sustainability criteria alongside financial metrics, with Taxonomy alignment often serving as a threshold requirement. Second, covenant structures include sustainability-linked components that traditional bank facilities lack. Third, private credit providers typically offer greater flexibility in structuring—including longer tenors, bullet maturities, and tailored amortization—suited to climate project economics. Fourth, due diligence processes emphasize impact measurement capabilities and climate risk assessment alongside credit fundamentals. Fifth, private credit facilities often include value-added services such as sustainability advisory support and network introductions that pure lending relationships do not provide.

Sources

• European Investment Fund. (2024). Annual Report on Climate Finance Deployment. Luxembourg: EIF Publications. Available at: eif.org/climate-finance-report-2024

• Loan Market Association. (2024). Sustainability-Linked Loan Principles: Updated Framework. London: LMA Publications. Available at: lma.eu.com/sustainable-lending

• European Commission. (2024). EU Taxonomy Compass: Technical Screening Criteria Implementation Guidance. Brussels: Official Journal of the European Union. Available at: ec.europa.eu/taxonomy-compass

• BloombergNEF. (2025). European Sustainable Finance Market Outlook. London: Bloomberg L.P. Analysis of €47.3 billion private credit deployment based on transaction-level data.

• Task Force on Climate-related Financial Disclosures. (2024). Status Report: Financial Sector Progress on Climate Risk Assessment. Basel: Financial Stability Board. Available at: fsb-tcfd.org/publications

• Climate Policy Initiative. (2024). Global Landscape of Climate Finance 2024. San Francisco: CPI. Available at: climatepolicyinitiative.org/landscape

• European Central Bank. (2024). Supervisory Expectations for Climate Risk Management in Lending. Frankfurt: ECB Banking Supervision. Available at: bankingsupervision.europa.eu/climate

• International Capital Market Association. (2024). Green Bond Principles and Climate Transition Finance Handbook. Zurich: ICMA. Available at: icmagroup.org/sustainable-finance