Ethical Investors Tightening Screws on Emerging-Market Debt Issuers
For years, the Brazilian mining conglomerate Vale was a darling of emerging market investors, who were happy to ignore the company’s poor record on environmental and social issues because of the high yields its bonds paid.
But warnings about the company’s policies were horribly vindicated in 2015, when a dam holding back waste at its Samarco mine burst, killing 19 people in Brazil’s worst-ever environmental disaster.
Prices on Vale and Samarco bonds plummeted by about a third after the disaster. Vale, along with mine co-owner BHP Billiton, is facing a multi-billion dollar claim.
Events like that are increasingly spurring fund managers to look closer at environmental, social and governance (ESG) risks before investing in emerging markets, where polluting industries and accounting issues have often gone unpunished.
This is especially so in dollar debt markets, where the temptation of a lucrative income stream via high-interest bond coupons has often proved too strong to resist.
But recent months have seen more frequent governance-driven sell offs – from “accounting irregularities” at South African retailer Steinhoff to bribery and food safety investigations at Brazilian meatpacker JBS.