Published on October 27, 2022
In this video, Venk Reddy, CIO of Sustainable Credit, explains the differences between how ESG fixed income managers and equity managers engage with their portfolio companies.
So, we've been doing fundamental investing in bonds for a really long time, and the way you engage with management teams as a fixed income investor is different than the way you engage with management teams as an equity investor. With respect to ESG, I'm not sure that ESG risks materially change whether a company's willing to engage with you theoretically, but what we found is that management teams are actually really excited to engage with us when we reach out to them, for a variety of reasons. Number one, a lot of fixed income and a lot of corporate credit in particular doesn't necessarily have publicly traded equity, so they're not used to answering or talking about ESG risks with investors in general. And a lot of them are really excited to talk about that with their investors. They may not publish on it because they might be a small company and it's just not something that they're able to handle in the way that a very large multinational corporation could, but it doesn't mean they're not doing anything. And so, they're really excited to engage on that front. The other is, quite frankly, as a bond investor, you can encourage companies to take certain actions, you can ask them to consider risks that they may not be considering before, but we don't have the vote like the equity does to punish them without... other than taking away our capital, to punish a company for behaving a certain way. And there's a certain amount of exhaling that happens when the consequences are more related to whether we remain invested versus whether we're going to vote to vote in a certain way at a shareholder meeting.
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