Great Elm Capital Corp. (GECC): Analyse de Pestle [Jan-2025 Mise à jour]

Dans le paysage dynamique de Business Development Capital, Great Elm Capital Corp. (GECC) navigue dans un écosystème complexe de défis et d'opportunités interconnectés. Cette analyse complète du pilon dévoile les facteurs externes à multiples facettes qui façonnent la trajectoire stratégique de l'entreprise, des pressions réglementaires et des perturbations technologiques à l'évolution des attentes sociétales et des impératifs environnementaux. En disséquant les dimensions politiques, économiques, sociologiques, technologiques, juridiques et environnementales, nous offrons une perspective éclairante sur la façon dont GECC s'adapte et prospère dans un environnement d'investissement de plus en plus complexe.

Great Elm Capital Corp. (GECC) - Analyse du pilon: facteurs politiques

Environnement réglementaire pour les sociétés de capital de développement commercial

La Securities and Exchange Commission (SEC) maintient une surveillance stricte des sociétés de développement commercial (BDC) comme GECC. En 2024, la SEC applique les principales exigences réglementaires suivantes:

Aspect réglementaire	Exigence spécifique	Impact de la conformité
Ratio de couverture des actifs	200% minimum requis	Obligatoire pour les opérations BDC
Exigences de distribution	90% du revenu imposable doit être distribué	Maintient le statut d'impôt RIC
Limitation de levier	Ratio de dette / de capital-investissement jusqu'à 2: 1	Restreint la capacité d'emprunt

Impacts de la politique fiscale fédérale

Considérations d'impôt sur les sociétés:

• Taux d'imposition actuel des sociétés: 21%
• Crédit d'impôt potentiel pour les investissements qualifiés: jusqu'à 10% de la valeur d'investissement
• Période de détention des intérêts comptés: 3 ans pour le traitement à long terme des gains en capital

Paysage d'investissement géopolitique

Défis d'investissement transfrontaliers en 2024:

Région	Niveau de restriction d'investissement	Complexité réglementaire
Chine	Restrictions élevées	CFIUS Revue requise
Russie	Limitations graves	Les sanctions empêchent la plupart des transactions
UE	Restrictions modérées	Conformité aux réglementations de MiFID II

Shifts réglementaires potentiels

Changements de potentiel de politique administrative:

• Les modifications proposées sur les règles SEC pourraient avoir un impact
• Changements potentiels dans les définitions des investisseurs accrédités
• Exigences de divulgation améliorées pour les véhicules d'investissement alternatifs

Great Elm Capital Corp. (GECC) - Analyse du pilon: facteurs économiques

Les fluctuations des taux d'intérêt ont un impact sur la performance du portefeuille d'investissement

Depuis le quatrième trimestre 2023, la performance du portefeuille d'investissement de GECC est directement en corrélation avec les mouvements des taux d'intérêt de la Réserve fédérale. Le taux des fonds fédéraux était de 5,33% en décembre 2023, affectant considérablement les stratégies d'investissement de l'entreprise.

Impact des taux d'intérêt	Métrique de portefeuille	Valeur
Revenu de placement net	Q4 2023	7,2 millions de dollars
Intérêts	Annuel 2023	12,5 millions de dollars
Rendement du portefeuille	Taux actuel	8.6%

Risques de récession économique

GECC fait face à des défis potentiels avec les indicateurs de récession économiques. Le taux de croissance du PIB américain actuel de 2,1% au T4 2023 suggère une stabilité économique modérée.

Indicateur de risque de récession	Métrique	Valeur
Ratio dette / fonds propres	Actuel	1.42
Réserves en espèces	Q4 2023	45,3 millions de dollars
Diversification du portefeuille d'investissement	Secteurs couverts	7 industries différentes

Défis de volatilité du marché

La volatilité du marché a un impact significatif sur la gestion des fonds d'investissement de GECC. L'indice de volatilité S&P 500 (VIX) a en moyenne 13,7 en décembre 2023.

Métrique de la volatilité	Mesures	Valeur
Volatilité du portefeuille	Écart-type annuel	15.2%
Taux de rotation des investissements	Annuel	42%
Retour ajusté au risque (ratio Sharpe)	Actuel	1.3

Sentiment d'investissement en partenaire limité

Le sentiment d'investissement motivé par les indicateurs économiques montre une dynamique complexe pour les efforts de collecte de fonds de GECC.

Indicateur de sentiment d'investissement	Métrique	Valeur
Engagements de partenaires limités	Annuel 2023	128,6 millions de dollars
Indice de confiance des investisseurs	Actuel	62.4
Nouvelles acquisitions d'investisseurs	Q4 2023	17 nouveaux partenaires limités

Great Elm Capital Corp. (GECC) - Analyse du pilon: facteurs sociaux

Préférence croissante des investisseurs pour les stratégies d'investissement axées sur l'ESG

Selon Morningstar, les actifs mondiaux axés sur l'ESG ont atteint 2,5 billions de dollars en 2023, ce qui représente une augmentation de 15,2% par rapport à 2022. Les stratégies d'investissement durable représentent désormais 18,4% des actifs gérés totaux aux États-Unis.

Année	Assets ESG (milliards USD)	Croissance en glissement annuel
2021	2.1	12.7%
2022	2.3	9.5%
2023	2.5	15.2%

Demande croissante de pratiques de gestion des investissements transparents

Une enquête PWC a révélé que 87% des investisseurs institutionnels considèrent la transparence comme un facteur critique dans la prise de décision d'investissement. La confiance des investisseurs dans les rapports financiers a diminué de 22% depuis 2020.

Chart démographique affectant les préférences d'investissement institutionnelles et individuelles

Les investisseurs du millénaire et de la génération Z représentent désormais 43% du total des acteurs du marché des investissements. Les préférences d'investissement générationnelles montrent une divergence importante:

Génération	Préférence pour les plateformes numériques	Attribution des investissements ESG
Milléniaux	76%	45%
Gen Z	89%	62%
Baby-boomers	31%	22%

Tendances de travail à distance ayant un impact sur les opérations du secteur des services financiers

McKinsey Research indique que 72% des sociétés de services financiers ont adopté des modèles de travail hybrides. L'adoption des travaux à distance dans le secteur financier a augmenté l'efficacité opérationnelle de 18,5% en 2023.

• 68% des professionnels de la finance préfèrent des accords de travail flexibles
• Économies de coûts des travaux à distance estimés à 11 000 $ par employé par an
• Les investissements en cybersécurité dans les infrastructures de travail à distance ont augmenté de 37% en 2023

Great Elm Capital Corp. (GECC) - Analyse du pilon: facteurs technologiques

Cybersécurité critique pour protéger les données d'investissement sensibles

Great Elm Capital Corp. a alloué 1,2 million de dollars à l'infrastructure de cybersécurité en 2023. La société a signalé 0 incident majeur à violation de données au cours des 24 derniers mois. L'investissement en cybersécurité représente 3,7% du budget technologique total.

Métrique de la cybersécurité	2023 données
Budget annuel de cybersécurité	$1,200,000
Incidents de violation de données	0
Attribution du budget technologique	3.7%

Intelligence artificielle et apprentissage automatique transformant l'analyse des investissements

Outils d'analyse d'investissement en IA déployés par GECC:

• Des modèles prédictifs d'apprentissage automatique couvrant 87% du portefeuille d'investissement
• Algorithmes d'évaluation des risques dirigés par AI
• Algorithmes commerciaux automatisés exécutant 42% des transactions d'investissement

Métriques d'investissement en IA	Données quantitatives
Couverture du portefeuille	87%
Traitement quotidien des données	2 300 000 points de données
Exécution automatisée des transactions	42%

Plates-formes numériques améliorant la communication et les rapports des investisseurs

GECC a investi 750 000 $ dans les plateformes de communication des investisseurs numériques. L'utilisation du portail des investisseurs en ligne a augmenté de 64% en 2023, avec un taux de satisfaction des utilisateurs de 92%.

Métriques de plate-forme numérique	Performance de 2023
Investissement de plate-forme numérique	$750,000
Augmentation d'utilisation du portail	64%
Taux de satisfaction de l'utilisateur	92%

Cloud Computing permettant une infrastructure de gestion des investissements flexible

GECC a migré 95% de l'infrastructure informatique vers les plates-formes cloud. Les dépenses annuelles du cloud computing ont atteint 1,5 million de dollars, ce qui réduit les coûts opérationnels de 28%.

Métriques de cloud computing	Données quantitatives
Migration du cloud d'infrastructure	95%
Dépenses cloud annuelles	$1,500,000
Réduction des coûts opérationnels	28%

Great Elm Capital Corp. (GECC) - Analyse du pilon: facteurs juridiques

Conformité aux réglementations SEC pour les sociétés de développement commercial

Great Elm Capital Corp. est enregistré en tant que société de développement commercial (BDC) en vertu de la loi sur la société d'investissement de 1940. En 2024, la société doit respecter des exigences réglementaires spécifiques de la SEC:

Exigence réglementaire	Métrique de conformité spécifique
Diversification des actifs	Au moins 70% du total des actifs doit être investi dans des actifs admissibles
Limitation de levier	Ratio de dette / capital maximum de 2: 1
Exigence de distribution	Minimum 90% du revenu imposable distribué aux actionnaires

Exigences légales en cours pour les rapports financiers transparents

Le GECC est soumis à des obligations strictes sur l'information financière:

• Déposages trimestriels 10-Q
• Rapports annuels 10-K
• Divulgation immédiate de 8-K pour les événements matériels

Métrique de rapport	Fréquence de conformité	Corps réglementaire
Audits des états financiers	Annuellement	SEC et PCAOB
Sarbanes-Oxley Conformité	Continu	SECONDE

Risques potentiels en matière de litige dans les transactions d'investissement complexes

Les principaux domaines de risque de contentieux pour GECC comprennent:

• Conflits d'évaluation des investissements
• Poursuites dérivées des actionnaires
• Violation des demandes d'obligation fiduciaire

Évolution des cadres réglementaires pour les véhicules d'investissement alternatifs

Cadre réglementaire	Impact sur GECC	Exigence de conformité
Dodd-Frank Act Dispositions	Exigences de rapports améliorées	Évaluations des risques trimestriels
Loi sur les conseillers en placement	Augmentation de la transparence	Divulgation détaillée des stratégies d'investissement

Great Elm Capital Corp. (GECC) - Analyse du pilon: facteurs environnementaux

Pression croissante pour intégrer les critères de durabilité dans les décisions d'investissement

Selon la Global Sustainable Investment Alliance (GSIA), les actifs d'investissement durable ont atteint 35,3 billions de dollars en 2020, ce qui représente une augmentation de 15% par rapport à 2018.

Année	Actifs d'investissement durable	Taux de croissance
2018	30,7 billions de dollars	-
2020	35,3 billions de dollars	15%

Évaluation des risques du changement climatique pour les investissements des entreprises de portefeuille

Le groupe de travail sur les divulgations financières liés au climat (TCFD) a indiqué que 1 500 organisations avec une capitalisation boursière de 12,6 billions de dollars ont soutenu les divulgations du risque financier liées au climat en 2021.

Métrique du risque climatique	Valeur
Organisations soutenant TCFD	1,500
Capitalisation boursière totale	12,6 billions de dollars

Augmentation de la demande des investisseurs pour des stratégies d'investissement responsables de l'environnement

L'enquête de BlackRock en 2021 a indiqué que 88% des investisseurs institutionnels considéraient les facteurs ESG dans leur approche d'investissement.

Catégorie d'investisseurs	Pourcentage d'intégration ESG
Investisseurs institutionnels	88%

Développements réglementaires potentiels autour de la divulgation du carbone et de l'investissement d'impact

La Commission américaine des Securities and Exchange a proposé des règles de divulgation climatique en mars 2022, obligeant les entreprises publiques à signaler les émissions de gaz à effet de serre et les risques financiers liés au climat.

Action réglementaire	Détails
Proposition de divulgation du climat de la SEC	Émissions de gaz à effet de serre obligatoires et rapport sur les risques climatiques
Date de proposition	Mars 2022

Great Elm Capital Corp. (GECC) - PESTLE Analysis: Social factors

Aging business owners are driving an increase in M&A exits and transitions.

The demographic shift among US business owners is creating a significant tailwind for the middle-market lending environment where Great Elm Capital Corp. (GECC) operates. Many founders, particularly those in the baby boomer generation, are nearing retirement without a clear succession plan, pushing their companies onto the M&A market. This trend is a key driver for deal flow in 2025, especially for firms like GECC that provide financing for these transactions.

This dynamic is evident in the lower middle market, which saw a dip in valuation multiples in the first half of 2025. Enterprise Value (EV) to EBITDA multiples for smaller transactions fell to 6.61x, down from 7.11x in 2024. To be fair, this drop reflects a more cautious lending environment, but it also means buyers are getting better value, which increases the likelihood of a successful transition. For GECC, this means more opportunities to finance stable, cash-flowing businesses that are being sold for lifestyle reasons rather than financial distress.

Here's the quick math on the opportunity:

• Lower EV/EBITDA multiples (e.g., 6.61x in H1 2025) mean less leverage is needed for a deal.
• This reduces risk for GECC's debt investments.
• The aging founder phenomenon is a long-term supply driver for quality assets.

Private equity's record 'dry powder' (uncalled capital) is fueling bolt-on acquisitions.

The vast reservoir of uncalled capital, or dry powder, held by private equity (PE) firms is a major social and economic force directly impacting GECC's deal pipeline. PE firms are sitting on an estimated $2.3 trillion in dry powder as of mid-year 2025, and they are under immense pressure from their Limited Partners (LPs) to deploy this capital.

The most common deployment strategy right now is the 'buy-and-build' or bolt-on acquisition model, where a PE-owned platform company buys a smaller, complementary business. Middle-market deals, which are the bread and butter for GECC's corporate credit portfolio, accounted for a massive 95% of all M&A deal activity in 2024. This is defintely where the action is. When a PE firm executes a bolt-on, they often need a financing partner like GECC to provide the debt, which is why the firm focuses on first lien senior secured investments, comprising about two-thirds of its corporate portfolio as of September 30, 2025.

This table shows the sheer scale of the capital waiting to be deployed:

Private Equity Dry Powder Metric	Value (as of 2025)	Implication for GECC
Global Dry Powder (Uncalled Capital)	Over $2.3 trillion	High pressure to deploy capital into middle-market deals.
Middle-Market Deal Activity Share (2024)	95% of all M&A transactions	Confirms GECC's core market is the primary target for PE deployment.
GECC Total Investments (Q3 2025)	$325.1 million	A small, agile lender positioned to participate in the high volume of smaller, bolt-on transactions.

Consumer spending is gradually increasing, supporting the revenue stability of portfolio companies.

The overall health of the US consumer directly translates into the revenue stability of the middle-market companies GECC lends to. The outlook for 2025 is one of continued, albeit moderating, growth. Real Personal Consumption Expenditure (PCE) is forecast to increase by 2.1% for the year, a healthy rise that supports the top-line of portfolio companies.

While nominal spending growth is expected to slow from 5.7% in 2024 to 3.7% in 2025, the underlying strength remains. This stability is supported by a resilient job market and accumulated household wealth. For GECC, this means the borrowers in its portfolio-which had a weighted average current yield of 11.5% on its debt portfolio as of September 30, 2025-are generally operating in a favorable demand environment, reducing the risk of default.

The key is that services spending, which is less impacted by interest rates and tariffs, is expected to increase by 1.9% in 2025. This resilience in the service economy provides a solid foundation for many middle-market businesses.

Increased focus on employee well-being and diversity in hiring impacts portfolio company operations.

Social expectations around corporate behavior have solidified into material business factors, particularly concerning employee well-being and Diversity, Equity, and Inclusion (DEI). For GECC's portfolio companies, ignoring these factors is no longer just a reputational risk; it's a financial one.

The evidence is clear: DEI directly correlates with financial performance. Companies with ethnically diverse executive teams are 36% more likely to outperform their peers on profitability. Plus, organizations with diverse leadership report 19% higher innovation revenue. This is a competitive edge, not a cost center.

Similarly, a focus on employee well-being is now a strategic imperative. Companies prioritizing it report up to 20% higher productivity and a 10% increase in retention rates. Given that 76% of job seekers consider a diverse workforce an important factor, a strong DEI and well-being program is critical for attracting and retaining the talent needed to service GECC's debt. For GECC as a lender, this means underwriting portfolio companies must now include a qualitative assessment of their human capital strategy. If onboarding takes 14+ days, churn risk rises.

Great Elm Capital Corp. (GECC) - PESTLE Analysis: Technological factors

Direct exposure to the high-growth AI/Cloud sector via a CoreWeave-related investment.

The most significant technological factor impacting Great Elm Capital Corp.'s (GECC) near-term performance is its indirect exposure to the Artificial Intelligence (AI) and cloud computing infrastructure boom. This is not a direct loan to a middle-market company, but a strategic investment in a CoreWeave-related vehicle, CW Opportunity II. This investment has provided a powerful, albeit volatile, upside.

For example, unrealized gains on this CoreWeave-related investment were the primary driver behind the increase in Net Asset Value (NAV) per share to $12.10 as of June 30, 2025, up from $11.46 just three months prior. But this is a two-sided coin: the volatility is real. A subsequent decline in the fair value of this investment contributed to the NAV per share dropping to $10.01 by September 30, 2025. This single asset acts as a high-octane call option on the broader AI infrastructure market, which Goldman Sachs estimates could see global investment approach $200 billion in 2025 alone. You're getting a piece of the action, but you defintely need to stomach the swings.

Digital transformation drives demand for financing in specialty finance and asset-backed lending.

The massive capital expenditure required for digital transformation-think new data centers, cloud migration, and AI hardware-is creating enormous demand for sophisticated financing structures like asset-backed lending (ABL) and specialty finance. GECC is actively positioning itself to capitalize on this trend.

The company's investment in Great Elm Specialty Finance, which focuses on these complex, hard-asset-backed deals, totaled approximately $44.7 million as of September 30, 2025. This segment represents a meaningful 13.7% of the total portfolio fair value of $325.1 million, up from $36.4 million in Q2 2025. This focus on Asset-Based Finance (ABF) is a smart move because it offers contractual income backed by tangible collateral, which is exactly what a BDC needs in a high-rate environment. The demand for ABF is growing as traditional banks retreat from riskier or more complex financing, leaving a clear runway for private credit providers like GECC.

Increased use of data analytics and AI by GECC to improve credit underwriting and risk modeling.

While GECC focuses on disciplined capital deployment, the competitive landscape of private credit demands the use of advanced technology for due diligence. You simply cannot compete in 2025 without it. The broader financial services industry is all-in on this, with 76% of decision-makers prioritizing the implementation of AI/Machine Learning (ML) into risk decisions over the next three years.

For a direct lender, adopting AI-driven underwriting (the process of assessing a borrower's creditworthiness) is no longer a luxury; it's a necessity for speed and precision. Here's the quick math: Lenders using AI-based scoring have reported reducing manual underwriting time by as much as 40%, which frees up seasoned analysts to focus on complex deal structuring instead of routine data entry. By leveraging these tools, GECC can more effectively manage its portfolio of 85 investments (66 debt, 19 equity) and maintain its commitment to a secured debt position, where first-lien loans comprised two-thirds of the corporate portfolio as of September 30, 2025.

Cybersecurity risks for middle-market borrowers increase, requiring stronger loan covenants.

The dark side of digital transformation is the escalating threat of cyberattacks, and this risk is disproportionately affecting the middle-market companies that make up GECC's core borrower base. According to an April 2025 report, nearly one in five (18%) middle-market organizations experienced a data breach in the last year.

For GECC, a breach at a portfolio company is a direct credit event that can impair collateral value and interrupt cash flow. This means that loan covenants-the rules borrowers must follow-are getting tighter and more specific around technology. While middle-market loans already include robust financial covenants over 75% of the time, we are seeing a shift toward mandatory non-financial covenants related to technology.

These new covenants often require borrowers to:

• Maintain a minimum cybersecurity insurance policy (82% of middle-market firms now carry cyber insurance).
• Submit to regular third-party cybersecurity audits.
• Implement specific identity and access management (IAM) protocols.

This trend forces GECC to enhance its due diligence to include a deep dive on a borrower's IT infrastructure, making the underwriting process more complex but ultimately more secure. Finance: Ensure your deal teams are working with IT diligence experts to draft explicit cybersecurity maintenance covenants for all new loans by December 31, 2025.

Great Elm Capital Corp. (GECC) - PESTLE Analysis: Legal factors

BDC Regulatory Compliance Under the Investment Company Act of 1940 is a Constant Operational Cost

You have to understand that being a Business Development Company (BDC) isn't just a title; it's a rigorous legal and operational framework. Great Elm Capital Corp. (GECC) is regulated under the Investment Company Act of 1940 (the 1940 Act), which imposes strict rules on everything from asset composition to leverage limits. This compliance is a defintely a constant operational cost, requiring a dedicated, high-cost legal and compliance team to manage the complexity of regulations, like the requirement to qualify as a Regulated Investment Company (RIC) for tax purposes under Subchapter M of the Internal Revenue Code.

The core legal factor here is maintaining the asset coverage ratio-the BDC's total assets relative to its total debt. The 1940 Act requires a minimum asset coverage ratio of 150% for BDCs to incur debt, which means for every dollar of debt, you must have $1.50 in assets. As of September 30, 2025, GECC's asset coverage ratio was 168.2%, giving them a cushion, but still requiring constant monitoring to prevent a breach that could trigger severe restrictions on new borrowings and dividend payments.

Issued $50 Million of 7.75% Notes Due 2030 to Refinance Higher-Cost Debt

A smart legal and financial move in Q3 2025 was the debt refinancing. GECC issued $50.0 million aggregate principal amount of its 7.75% Notes Due 2030 in September 2025.

Here's the quick math on the legal and financial benefit: The net proceeds of approximately $48.1 million were primarily used to redeem the entire outstanding principal amount of the 8.75% Notes Due 2028. This is a direct interest rate reduction of 1.00% on $40 million of debt. This debt restructuring is a legal action that immediately translates into a projected annual cash interest expense savings of approximately $0.4 million, which is a clear win for shareholders.

The new notes, which mature on December 31, 2030, also extend the maturity profile, pushing out a key refinancing risk by over two years.

• New Debt: $50.0 million of 7.75% Notes Due 2030.
• Old Debt Redeemed: $40.0 million of 8.75% Notes Due 2028.
• Annual Cash Interest Savings: Approximately $0.4 million.

The Board Approved a $10 Million Share Repurchase Program in Q4 2025

The Board's decision to authorize a new share repurchase program, announced in Q4 2025, is a legal action taken to manage capital structure and signal confidence. The program allows the Company to repurchase up to an aggregate of $10 million of its outstanding common shares.

This is a direct, actionable step to potentially reduce the discount of the stock price to the Net Asset Value (NAV) per share. When the stock trades below NAV-which was $10.01 per share as of September 30, 2025-buying shares back at a discount is accretive to the remaining shareholders' NAV.

Bankruptcy of First Brands in Q3 2025 Realized a Direct NAV Impact of Approximately $1.15-$1.25 Per Share

The legal process of bankruptcy is where credit risk turns into an immediate, realized financial hit. The Chapter 11 filing by First Brands Group, LLC, at the end of September 2025, was the key driver of GECC's NAV decline for the third quarter.

GECC was a direct lender to First Brands, holding both the First Lien Loan and Second Lien Loan, which were immediately placed on non-accrual status. The direct adverse impact to the company's NAV per share was estimated to be approximately $1.15-$1.25 for Q3 2025. This single legal event caused the NAV per share to drop from $12.10 at the end of Q2 2025 to $10.01 at the end of Q3 2025.

What this estimate hides is the complexity of the ongoing legal recovery process. The total direct adverse impact to net asset value was approximately $16.5 million, and that doesn't include an estimated additional adverse effect of $0.25 per share from related Collateralized Loan Obligation (CLO) exposures.

Legal/Financial Event (Q3/Q4 2025)	Financial Impact/Amount	Regulatory Context
First Brands Bankruptcy (Q3 2025)	Direct NAV Impact: $1.15-$1.25 per share	Lender exposure in a Chapter 11 proceeding, resulting in non-accrual status for loans.
Debt Refinancing (Q3 2025)	Issued $50.0 million of 7.75% Notes Due 2030; Saved 1.00% on $40 million of debt.	Optimizing debt structure under BDC leverage rules; reduced annual cash interest expense by ~$0.4 million.
Share Repurchase Authorization (Q4 2025)	Up to $10 million program authorized.	Board action to manage capital structure and enhance shareholder value, typically used when trading below NAV.
Asset Coverage Ratio (Q3 2025)	168.2% as of September 30, 2025.	Mandatory compliance threshold under the Investment Company Act of 1940 (minimum 150%).

Great Elm Capital Corp. (GECC) - PESTLE Analysis: Environmental factors

ESG (Environmental, Social, and Governance) reporting demands are increasing for middle-market suppliers.

You need to understand that the Environmental factor for Great Elm Capital Corp. (GECC) isn't about their own carbon footprint, but the compliance burden and risk exposure of their portfolio companies, which are largely middle-market businesses. This pressure is accelerating dramatically in 2025. The trend is clear: large corporate buyers and public-sector entities are mandating Environmental, Social, and Governance (ESG) disclosures from their smaller suppliers.

One major Business Development Bank of Canada (BDC) industry study noted that the proportion of major buying organizations requiring some form of ESG disclosure from their suppliers was expected to hit 92% by 2024. This means that a significant portion of GECC's portfolio, which totaled $325.1 million at fair value as of September 30, 2025, is defintely facing a new, non-financial hurdle to retain customers. If a middle-market company in their portfolio can't provide basic environmental data, it risks being cut out of lucrative supply chains. It's a commercial risk, plain and simple.

Portfolio companies face pressure on energy use and environmental risk management from large buyers.

The pressure on GECC's investments is getting granular, moving beyond simple policy statements to measurable operational metrics. The same industry surveys show that three-quarters of large organizations plan to increase their ESG expectations over the next five years on specific environmental factors. For a lender like GECC, this translates directly into credit risk for their borrowers, especially those in the corporate credit segment, which represented approximately $189.3 million (or 58.2% of their total investments) as of September 30, 2025.

The key areas of focus for these large buyers are:

• Mandating energy use disclosure.
• Requiring formal environmental risk management plans.
• Demanding supply chain emissions (Scope 3) data.

If a portfolio company has high, unmanaged energy consumption or a history of environmental fines, its long-term cash flow and enterprise value are compromised. This is a material risk to GECC's ability to generate its target returns.

Lack of a comprehensive, public GECC-specific ESG report presents a potential investor relations gap.

Despite the rising importance of ESG to investors, Great Elm Capital Corp. has not released a dedicated, comprehensive public ESG or Sustainability Report as of November 2025. Information on their environmental policy, portfolio company screening, or specific performance metrics is largely absent from their public documents, including their quarterly financial results and investor presentations. This is a significant investor relations gap, especially when competing Business Development Companies are increasingly adopting frameworks like the Sustainability Accounting Standards Board (SASB) or the Task Force on Climate-related Financial Disclosures (TCFD). Investors are looking for proof, not just promises.

Here's the quick math on the disclosure contrast as of Q3 2025:

Metric	GECC Public Disclosure (Q3 2025)	Investor Demand (Industry Standard)
Total Investments (Fair Value)	$325.1 million	Highly Detailed
Weighted Average Current Yield	11.5%	Highly Detailed
Dedicated ESG/Sustainability Report	Absent	High (Expected by institutional investors)
Portfolio-wide Carbon Footprint (Scope 1 & 2)	Absent	Increasingly Required
Formal Climate-Related Risk in Valuation Model	Absent from public reports	Required for best practice (ASC 820 context)

Climate-related physical risks are increasingly factored into long-term asset valuations.

The financial world is moving past just 'transition risk' (like carbon taxes) to 'physical risk' (like floods and extreme heat). For GECC, this means the geographic location and operational resilience of their portfolio companies are now material factors in the fair value of their debt and equity investments. The Financial Stability Board (FSB) and other global bodies are pushing for better methodologies to analyze physical risk and its impact on financial stability in 2025.

Since BDCs must comply with the Fair Value Measurements and Disclosures (FASB ASC Topic 820), the ultimate responsibility for a fair valuation rests with the Board of Directors. If a portfolio company, for example, operates a critical manufacturing facility in a flood-prone coastal region, the increasing frequency of extreme weather events in 2024 emphasizes the need to prioritize resilience and adaptation. Failure to formally integrate this physical risk into the discount rate or cash flow projections for that asset is a valuation risk, which can lead to unexpected losses, like the one that drove the Net Asset Value (NAV) per share down to $10.01 in Q3 2025 from $12.10 in the prior quarter. This is an area where GECC needs to provide more transparency on its risk management and valuation process.