How private credit, ESG are redefining corporate finance

Private credit, which has surged to dominate an estimated $4.1 trillion in assets under management by 2025, has moved from a niche product to a mainstream financing channel. Its growth reflects investors’ desire for flexible, diversified exposure beyond public markets, especially amid interest rate volatility and regulatory shifts.

Meanwhile, ESG investing, particularly prominent in Europe with over $1 trillion in private markets tied to these principles, is driving more sustainable, socially responsible financing practices across corporate ecosystems worldwide.

Global financial powerhouses such as Apollo Global Management, Blackstone, Ares Management, Brookfield Asset Management, Crédit Agricole Group, Societe Generale, and Tikehau Capital are at the forefront of managing and innovating within these markets.

They combine capital scale, sector expertise, and technological sophistication to construct complex, tailored deals spanning infrastructure, technology, and private equity sectors.

This leadership is further strengthened by law firms such as Mayer Brown who provide critical legal structuring and compliance services to navigate increasingly complex regulatory environments. Regulations, notably expanding under frameworks such as the EU’s AIFMD 2.0, and growing self-regulatory initiatives across US and UK markets, are sharpening risk oversight and ESG disclosure standards.

Market participants are responding with technological investments in data standardisation, automation, and sustainability-linked covenants that embed ESG outcomes into financial agreements.

These dynamics indicate that private credit and ESG integration will continue evolving toward deeper market penetration, advanced risk management, and sustainable value creation over the coming years.

Against this backdrop, Kenya’s ambitious privatisation initiatives present a fertile case study for how emerging markets can leverage private credit and ESG finance to catalyse economic transformation.

Read:  Why adopting ESG principles are essential to business growth

Kenya’s drive to privatise key State assets such as the Kenya Pipeline Company (KPC), alongside ongoing share sales in Safaricom, ambitious affordable housing efforts, and the sizable expansion of Jomo Kenyatta International Airport (JKIA), exemplifies a multi-pronged approach to mobilising private capital while promoting socio-economic and environmental goals.

The planned sale of KPC in late this year aims to raise significant capital to modernise energy infrastructure, expand distribution networks, and foster operational efficiencies necessary for regional competitiveness.

This will be Kenya’s largest privatisation in years and a landmark transaction in its capital markets history. By integrating private credit financing alongside equity issuance, the government can attract institutional capital seeking diversified risk-return profiles with tailored debt instruments such as mezzanine debt and credit-enhanced facilities.

These provide stability and reduce fiscal exposure while maintaining partial government ownership of this strategic asset. Equally transformative is the opportunity to embed ESG frameworks — focusing on environmental stewardship of oil pipeline operations, social responsibility in affected communities, and transparent governance — thereby aligning KPC with global sustainability expectations.

This approach can help tap international green funds and development finance institutions with mandate for climate impact, while potentially lowering the cost of capital through enhanced investor confidence.

Complementary private credit can provide flexible, short- to medium-term growth capital needed to scale network infrastructure and innovate without compromising shareholder value through excessive equity issuance.

Kenya’s affordable housing ambitions also provide a compelling platform for structured finance innovation that integrates private credit and ESG. Bundling cash flows from affordable housing mortgage repayments or rental income into asset-backed securities opens avenues for institutional impact investors seeking social as well as financial returns.

Private credit funds specialising in real estate and social impact financing can offer adaptable funding structures to meet the distinctive risk profiles of Kenya’s housing market, which traditionally faces liquidity shortages.

Incorporating ESG benchmarks related to energy efficiency, social inclusivity, and governance transparency will further heighten attractiveness to development lenders and global impact funds.

A centerpiece of Kenya’s infrastructure buildup is the expansion of Jomo Kenyatta International Airport, a cornerstone for regional trade and tourism growth. After government cancellation of a previous concession agreement with an international partner, Kenya is spearheading a $2 billion airport modernisation plan through public-private partnerships and blended capital strategies.

Development banks, government funding, and capital market products—such as securitised bonds backed by airport revenues and fuel levies—constitute the main financial pillars.

Here, private credit can provide liquidity bridges, mezzanine capital, or credit enhancements that increase deal bankability and catalyse private sector participation. Incorporating ESG accountability throughout construction, community engagement, and operational phases aligns with investor expectations and regulatory due diligence, cementing JKIA’s role as a sustainable aviation hub.

In essence, Kenya’s privatisation and infrastructure modernisation efforts illustrate how emerging markets can harness global private credit growth and ESG-driven finance to achieve transformational development outcomes.

By integrating these innovative financing strategies across state asset sales, digital sector expansion, affordable housing, and major infrastructure like JKIA, Kenya positions itself as a model for sustainable, market-based economic growth in Africa.

The enabling environment supporting these innovations includes Kenya’s Privatization Act of 2023, which bolsters transparency, governance, and investor protections. Capital market reforms and improved infrastructure for digital disclosures and investor communications strengthen confidence and market efficiency.

Furthermore, Kenya’s embrace of blended finance—mixing concessional capital, private credit, and ESG-linked products—allows risk sharing, mobilises larger capital pools, and targets development and investment goals.

Guarantee mechanisms and first-loss capital from development agencies can also mitigate risks and attract further private capital participation.

Together, these strategies help Kenya reduce fiscal risks, improve domestic capital market depth, and accelerate infrastructure and social development aligned with Vision 2030 and the UN Sustainable Development Goals.

The catalytic role of private credit and ESG financing enables greater access to scalable, responsible, and innovative capital sources that balance economic growth with environmental and social safeguards.

These financing models also encourage local institutional investors, including pension funds and insurance companies, to mobilise domestic capital toward national priorities while seeking competitive returns.

As Kenya advances these initiatives through sound regulatory frameworks, transparent governance, and investor engagement, it not only enhances financial resilience but also generates inclusive prosperity and environmental stewardship, securing a dynamic future in the global capital markets ecosystem.

The writer is a Corporate Finance Executive, New York and holds a Wharton MBA.