Will China, Russia, Egypt and Saudi Arabia bonds be targeted by ESG? Report Ft
"Sustainable" finance is growing thanks to the spread of ESGs, but investors are not giving up on the bonds of authoritarian countries such as Russia, Saudi Arabia and China, notes the Financial Times
After the hijacking of the Ryanair flight ordered by Belarus to arrest an opposition journalist, at the end of May, the German investment firm Union Investment decided to sell the Belarusian debt securities in its possession in order not to feed a regime guilty of human rights violations. . In June, the European Union imposed sanctions on Belarus which, among other things, prohibit European investors from buying or exchanging new bonds issued by Minsk.
These divestment practices – write Laurence Fletcher and Tommy Stubbington in the Financial Times – are not new and are not always successful. But they are growing, following the spread, in the world of finance, of ESG (Environmental, social and corporate governance) parameters, which “measure” the environmental, social and governance sustainability of an investment.
THE ESG DILEMMA
The financial industry is now faced with a dilemma, according to Fletcher and Stubbington: If investors have to get rid of Belarusian bonds because they feed an authoritarian regime, what should be done with bonds issued by other countries that do not care much about human rights? Many industry players fear a slump in profits if markets like Russia, Saudi Arabia and China become off-limits for investment.
SUSTAINABILITY AND PROFITS
There is a “tension” at the heart of the ESG phenomenon: should the sustainability of an investment be something to be sought regardless, or is it also a factor that reduces risks and guarantees greater profits? There is no perfect harmony between these two things. And so far, human rights abuses and international convictions haven't worked much as a disincentive for investors.
SAUDI ARABIA
The Financial Times gives the example of Saudi Arabia, which since the beginning of 2019 has sold international bonds for 32 billion dollars, despite the murder of journalist Jamal Khashoggi (traced back to Crown Prince Mohammed bin Salman, the de facto leader of the country) and the military campaign in Yemen (the situation in the country has been described as the worst humanitarian crisis in the world).
THE RUSSIA
In the same period as Riyadh, Russia raised over 10 billion dollars on international markets with its bonds, despite the annexation of Crimea (Ukrainian territory) in 2014.
EGYPT AND THE ROLE OF BLACKROCK
Egypt is a "very popular" country among emerging market investment management companies, Fletcher and Stubbington explain. Yet President Abdel Fattah al-Sisi is known for mass incarceration and violence against dissidents (the case that directly involves Italy is that of Patrick Zaki, without forgetting the murder of Giulio Regeni).
Egyptian bonds are held in large numbers by investment firms such as BlackRock , AllianceBernstein and Crédit Agricole, which say they care about ESG and human rights.
THE CHINA
The Financial Times also talks about a rise in foreign investors in China's large bond market, despite the squeeze on Hong Kong freedoms and human rights violations of the Uyghur minority in the Xinjiang region.
THE JPMORGAN PARADOX
34 per cent of the bonds in the widely used ESG EMBI Global Diversified index of the US bank JPMorgan are issued by countries judged “not free” by the NGO Freedom House, which works to promote human rights around the world.
THE RESPONSE OF FUND MANAGERS
To stave off criticism of inconsistency, many fund managers argue that their job is to generate profits for their clients, a goal that would become very difficult if they excluded all human rights disrespectful countries. It is not their job, they continue, to demand that governments respect these and other principles.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/bond-russia-arabia-saudita-cina-esg/ on Wed, 14 Jul 2021 12:40:01 +0000.