• This article explains how unlisted alternative ESG investments are made possible through asset securitization.
• The information is aimed at asset managers looking to incorporate ESG options into their strategies without sacrificing operational liquidity.
• FlexFunds offers an asset securitization program to develop ETPs that can span multiple asset classes, including ESG as underlying assets. For more information, feel free to contact our experts.

Institutional interest in ESG investments (environmental, social, and governance) is growing rapidly: In the United States, sustainable funds reached USD 6.6 trillion in 2025, and globally, the ESG market surpassed USD 39 trillion that same year.

However, unlisted vehicles (such as private equity, infrastructure projects, and private impact bonds) still face barriers such as a lack of standardized reporting, low transparency, and liquidity risks.

Why do unlisted ESG strategies face institutional barriers?

Alternative ESG investments present operational and standardization challenges in institutional settings.

Recent studies indicate that, in alternative vehicles, a lack of reporting, data availability, and transparency are critical obstacles.

In addition, these projects tend to have long horizons and restricted liquidity, which increases perceived risk.

Perceived risks and lack of standardization

Beyond liquidity, there is a concern about failing to meet ESG criteria (greenwashing) due to the absence of external oversight.

Closed-end vehicles do not typically undergo external audits of their social and environmental impact, which prevents institutional participants from verifying compliance with their ESG mandates. As a result, large institutional players (who represent the majority of the capital) prioritize structures with measurement and audit guarantees.

Meanwhile, there is no single reporting framework for private assets. While listed companies must follow standards such as IFRS S2 and CSRD, many clean energy or social impact projects have no obligation to report under those rules.

This makes it difficult to compare projects with one another. Without standards, there is a risk that each manager will define its own criteria, fragmenting the information. For example, institutional platforms prioritize reports based on recognized frameworks (like TCFD and SASB/ISSB), but a private project may not produce those reports.

Governance and traceability: keys to institutional distribution of ESG strategies

To overcome these barriers, it is essential to equip the vehicle with solid operational governance and full traceability. In practice, this means putting in place audit and oversight mechanisms comparable to those of conventional funds.

Auditable ESG frameworks and supervised structures

First, auditable ESG reporting frameworks must be integrated: Environmental and social data should be recorded under recognized standards (such as IFRS S2, EU Taxonomy, CSRD, and TCFD).

Including external audit processes (for example, social impact certifications or TCFD validations) strengthens the credibility and verifiability of the reported information.

Institutional investors demand these references, as industry guidelines indicate, pointing to TCFD/SASB as the preferred frameworks.

Second, the legal and financial structure must be placed under clear oversight. Ideally, the vehicle should operate within a regulatory framework or have a formal depositary.

For example, a global note program can be implemented, domiciled in a financial jurisdiction (like Luxembourg, Ireland, the U.S., or Switzerland), with a regulated issuance of bonds or notes backed by ESG assets.

In these cases, there is an issuer (SPV) that publishes periodic information and uses central depositories (such as Euroclear/Clearstream and BNY) for securities custody. As a result, every cash flow (interest, amortization) is recorded in recognized custody systems.

And centralized custody provides traceability, facilitating the audit of custody chains and account balances, a basic requirement for inclusion in portfolios.

FlexFunds and the issuance of listed ESG vehicles

A practical solution is securitized ETPs (exchange-traded products) on alternative assets.

FlexFunds, a leading firm in asset securitization with more than 15 years of experience, offers an example of how to repackage ESG assets into a listable vehicle: It converts private portfolios into ETPs with institutional standards.

The process involves preparing a note memorandum detailing the ESG strategy, and FlexFunds issues the ETP, generating an international ISIN/CUSIP code.

Thanks to the ISIN, the product can be registered in global systems (such as Euroclear) and distributed through international brokers, just like a conventional listed fund.

Unlike a mere offshore structure, FlexFunds’ model incorporates global custody and trading. In practice, this means the ETP can be bought and sold through private banking accounts and global networks, facilitating its distribution.

In addition, FlexFunds’ ETPs are launched within six to eight weeks, much faster than a conventional fund, and with maintenance costs well below those of typical structures.

Issuance with ISIN, custody, and global liquidity

The key differentiator is the combination of ISIN, central depositary, and listed issuance.

By placing the ETP through a central depositary, its operation in primary and secondary markets is facilitated, even though the underlying asset may be illiquid.

Custody with institutions such as BNY allows the vehicle to enter primary/secondary market clearing. This gives insurers and institutional funds confidence: They know positions can be settled and that flows will pass through supervised channels.

Use cases: social impact, clean energy, infrastructure

These listed vehicles apply to several ESG categories:

Social impact

ETP structures facilitate the financing of social projects (like affordable housing, community health, education and financial inclusion). They can securitize a portfolio of loans or grants for initiatives aligned with the SDGs. According to ECLAC, social bonds are key instruments for environmental and social projects with external auditing.

Clean energy

The most cited case is the renewable sector. According to the IEA, capital flows into the energy sector rose in 2025 to reach USD 3.3 trillion, a 2% increase in real terms compared to 2024.

Around USD 2.2 trillion went collectively to renewables, nuclear energy, power grids, storage, low-emission fuels, energy efficiency, and electrification, twice the USD 1.1 trillion allocated to oil, natural gas, and coal.

Pension funds and institutions are showing growing appetite for clean infrastructure, but they demand traceability: What PPA or cash flow is behind it? An ETP structured on a set of solar plants, wind farms, or residential assets can package this investment.

Infrastructure

Investments in green infrastructure (such as clean transport, smart power grids, and fiber optics that drive education and telemedicine) are also ideal candidates.

Many large infrastructure funds apply ESG criteria, but listing broadens the scope of institutional distribution. A green infrastructure ETP could securitize a portfolio of projects, offering investors a regulated income stream and ESG data (like emissions reduction and population coverage).

To learn more about FlexFunds products that help optimize the distribution of ESG investment strategies, feel free to contact our experts. We will be glad to assist you!

Sources:

• https://www.fortunebusinessinsights.com/esg-investing-market-113824
• https://www.ussif.org/research/trends-reports/us-sustainable-investing-trends-2025-2026-executive-summary
• https://www.fundssociety.com/es/noticias/alternativos/la-aplicacion-de-criterios-esg-a-la-hora-de-invertir-en-activos-alternativos-gana-peso-en-la-industria/
• https://www.climatebonds.net/news-events/press-room/press-releases/el-mercado-de-bonos-sostenibles-alcanza-nuevos-r%C3%A9cords
• https://www.bbva.com/es/sostenibilidad/ejemplos-de-financiacion-de-impacto-social-casos-reales-y-como-se-aplican/
• https://www.iea.org/reports/world-energy-investment-2025/executive-summary