Special Report – Researching ESG Risks and Green Bonds
by Reynard Loki
Part two of a special three part Sustainability Finance Report
SPECTRUM ANALYSIS AND TRUMP CARDS
When Calvert looks at an entire credit universe, they place the companies across a wide spectrum. On one end are companies who exhibit improving fundamentals and ESG characteristics that represent the largest EBITDA-generating opportunities. For those names, Calvert would typically express an overweight position versus the benchmark.
On the other end are companies that exhibit deteriorating fundamental and ESG characteristics, and therefore pose the greatest risks from negative outcome potentials. For those names, Calvert would typically express an underweight or "avoid" position versus the benchmark. And then there are companies between these two extremes.
"Our positioning in the portfolio really depends on magnitude of the fundamental or the ESG drivers and how one might trump the other," said Nguyen-Taylor, who gave PepsiCo (NYSE:PEP) as an example of a company in the middle segment of this universe.
"PepsiCo is a company that on the ESG side obviously has been a clear leader in sustainability with respect to water conservation and packaging," she said. "However, on the fundamental side—though the company is a stalwart consumer products company—we have been concerned about the event risk around this name and the potential for the company to be broken up into the beverage and the snacks businesses, which could have negative implications to you as a bond holder if your bonds were moving to the lower EBITDA-generating entity. And so this is a situation where fundamentals trump the ESG issues, and we at various points had a market underweight position in the name given where valuations were."
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Reynard Loki covers news about sustainability and CSR. He has written about social innovation, social enterprise, business ethics, ethical consumerism, animal rights and sustainable finance. A co-founder of MomenTech, a New York-based experimental production studio, he maintains the blog 13.7 Billion Years and is a contributing author to Biomes and Ecosystems (Salem Press, 2013), a comprehensive reference encyclopedia of the Earth's key biological and geographic classifications. He is a member of Farm Sanctuary, Sea Shepherd, Global Ethics Network and the Food & Water Watch Special Blog Outreach Unit.
