Turning up the heat in ESG
It was a big week for environmental, social and governance in the capital markets — aren't they all? But in the most recent developments, it is possible to detect a rise in the spiciness of the debate over what should and should not be acceptable.
The investment grade corporate bond market was flooded with issuance of the sustainable variety on Wednesday and Thursday.
“It continues to be the dominant theme of the week,” said a syndicate banker on Thursday, before correcting himself: “Of the year!”
“In every client conversation I’ve had in the past 12 or maybe even 24 months, ESG has been up to 100% or at least 5% of the meeting,” added a head of DCM. “It’s always coming up, even if it’s not supposed to.”
But there is a sign that some of those conversations may be growing more tense. While greenwashing has been identified as a potentially thorny issue for years, investors and even courts are becoming increasingly forceful in their attempts to bring corporations like Shell, Chevron and ExxonMobil to heel.
This week, a court in the Hague ruled that Shell’s greenhouse gas emissions had breached Dutch citizens’ human rights, while activist investors ousted two directors at ExxonMobil.
And while virtually every bank’s quarterly earnings presentation these days includes at least one slide on its work on green, sustainable and social bond offerings, investors and other stakeholders need ever more convincing that sustainability plans are genuine. Deutsche Bank recently took the unprecedented step of hosting a three hour “deepdive” into its green agenda for clients, investors the press and NGOs, with a dozen senior bankers including CEO Christian Sewing taking part. But climate-focused investors still demand more.
One asset class where investors seem to be taking a more relaxed approach to ethical investing is the sovereign debt of emerging markets countries whose governments are accused of corruption, election rigging, kidnapping or murdering journalists, or human rights abuses.
For portfolio managers of emerging markets debt funds, the fine balance between the fiduciary duty to get the best return for investors and concerns about making the world a better place seems to settle in a slightly different place than for PMs of investment grade corporate debt funds, for instance.
This was highlighted by the market reaction to the diversion by the Belarusian government of an international commercial passenger flight in order to arrest an exiled dissident and journalist, which attracted widespread condemnation and the threat of intensified sanctions from the West.
“We are slightly overweight on Belarus — we may get closer to neutral if there are more sanctions,” said one portfolio manager. “But when push comes to shove, money matters. Investors can talk about caring for the world all they like, but generating returns is our first responsibility.”
Here comes SMBC
The most high profile hire to be revealed in the past week is Markus Steilen, who left his job as deputy head of global syndicate at Commerzbank in April and is set to join SMBC in Frankfurt on July 1.
Other recent hires include Waldemar Redinger, also from Commerzbank, who will join in Frankfurt in July as a vice-president in corporate bond origination, and Marco Copaitich, a former Barclays banker who joined the Paris office in May as executive director of corporate DCM for southern Europe.
Another Japanese firm, Mizuho, has meanwhile been building up its derivatives trading presence in Europe, hiring three linear rates traders in London from Royal Bank of Canada, Millennium Capital Partners and Société Générale.
In New York, CLO structurer Risa Itoshima has left Morgan Stanley after seven years to join HPS Investment Partners.
And in corporate treasury, BT has appointed Andrew Binnie, a former member of Vodafone’s treasury team, as its new group treasury director in London.