THE PANEL Roundtable – ESG and sovereign debt
Nuwan Goonetilleke Head of shareholder assets Phoenix Group
Tamar Hamlyn
Senior portfolio manager Ardea Investment Management
Chris Grant
Chief investment officer Nationwide Pension Fund
Dr Laura Ryan Head of research Ardea Investment Management
Adam Matthews Chief responsible investment officer Church of England Pensions Board
Rima Sen Credit manager research Willis Towers Watson
Gerard van der Pol Senior portfolio manager, fixed income Unilever
Then there are some broader issues. Gov- ernments set the playing field for busi- nesses and society to operate in. If they are funding coal mines and providing infrastructure for those businesses via borrowing through government bond markets, it could be argued that that is at the expense of research and development into renewable energy technology. It impacts everything from our perspective.
50 | portfolio institutional | November 2021 | issue 108
What is needed to encourage sovereigns to reconcile their green debt with their more traditional bonds? Tamar Hamlyn: The difference between corporates and governments is starting to make itself present in the green bond space. From the fantastic work that has been done in corporate bonds, we now have companies that are incredibly responsive to investor expectations in terms of managing ESG risks. What we can see from the early steps being taken is that governments are start- ing to go down that path. That is a fantas- tic development because by issuing green bonds governments are starting to show the responsiveness to market expecta- tions that corporates are now experienced in doing. That is a positive development. The reason we think it is early steps, how- ever, is because issuing green bonds feels like the first step on the journey. It is con- venient to momentarily forget about their large number of existing legacy bonds. It is also easy to get behind the reasons for funding a corporate if it has a particular social purpose, but the social purpose of governance is broad, touching on impor- tant functions governments need to pro- vide. There are also functions that are less desirable in terms of their ESG risk pro- file. So, issuing green bonds is the first step on the road to governments getting a better understanding of what their activi- ties are and being responsive to the expec- tations of investors. Matthews: We are at an important moment, where bonds have been brought to market specifically for green invest- ments and projects, but we also have an increasing
understanding of what is
required from governments on issues like climate change. That is challenging us to think about taking different approaches to what we might be willing to hold. South Africa, for example, generates elec- tricity from burning coal. There is no alternative path to switch off that source. They are dependent on that despite the blackouts caused by demand on the grid.
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