Debt Issuers Who Should Know Better Are Unsure What ESG Is

(Bloomberg) -- In one of the world’s most advanced regions for sustainable investing, the acronym ESG still has some debt issuers drawing blanks.

Environmental, social and governance standards aren’t yet on the radar of many smaller bond issuers in the Nordic region, according to Cecilia Bevik-Cronqvist, the head of sustainable investing at Stockholm-based Nordic Credit Partners, which manages about 1.8 billion kronor ($213 million) in mostly high-yield debt.

Equally concerning, she said in an interview, is the number of issuers who pay lip service to the idea of ESG, but show “no signs of real integration into the company’s core business.”

The Nordic region generally stands out in a global context for its high level of sustainable debt issuance. So far this year, 18% of bonds sold by Nordic-based borrowers were green, compared with 5% in the rest of western Europe and less than 2% in the U.S., according to data compiled by Bloomberg.

But that green issuance is mostly being done by larger companies that are now revamping their debt programs as investors pay a premium for such assets. Bevik-Cronqvist says it’s a problem that smaller companies, which employ more people across Europe, “generally lag [behind] Nordic large caps.”

“Each company on its own might not constitute a large part of the world’s greenhouse gas emissions,” she said. “But it’s important to remember that together they do, and together they represent the backbone of a country’s economy.”

The investment manager recalls an anecdote in which a Nordic company issuing a 100 million-euro ($120 million) bond “was not familiar with the abbreviation ESG.”

Not all smallcap issuers are clueless about sustainability. “There are exceptions,” Bevik-Cronqvist said. “We also see a lot of sincere aspiration and ambition.”

Meanwhile, asset managers like Nordic Credit Partners are fielding questions from potential issuers eager to get some guidance on how to tap the growing pool of investors desperate to pile their cash into sustainable assets.

“An increasing number of issuers actually reach out to us,” Bevik-Cronqvist said. They’re keen “to fully understand what we require from an ESG perspective.”

The growing pool of demand has led to higher book coverage on green deals, according to a client note by DNB Markets on Wednesday. “The data supports our impression that the investor space looks slightly more diversified for green bonds than non-green bonds,” the analysts also said.

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