erwise it is a simplistic, knee-jerk approach. Investors should look into the future and see ESG as a source of alpha. Arevalo: ESG is part of our process. We have a dedicated person who focuses on ESG and engagement. It’s what she does all day. Sovereigns are difficult to engage with because more people are willing to give them money. That mentality has to change. Sovereigns have to be more willing to answer questions and engage with investors. It will be a slow development. We are starting to see in specific sectors such as coal, which is a typical red flag for an ESG fund, that the number of investors is shrinking.


That is reflected in them paying higher coupons than similar rated companies in other sectors because of their ESG risk. It is coming, but slowly. There is no standard so every asset man-


16 September 2022 portfolio institutional roundtable: Emerging market debt


ager has to do the best they can and explain their process. We are seeing more green bonds and you have to differentiate between those that are truly green and those which are not. One of the downsides of the ESG movement is that demand is higher than supply. There are not as many bonds outstanding as there are funds chasing them. What that has created is that green bonds tend to trade slightly more expensively than nor- mal bonds, even if they are issued by the same company. As supply increases valuation discrepancies between bonds issued by the same company will start to level out. Pickering: I am much more comfortable with the ESG debate than with the ethical or socially responsible investing that were the earlier manifestations of wanting to behave better with other people’s money.


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