Submitted by AllianceBernstein
Patrick O'Connell: At AllianceBernstein, we feel like we have a differentiated way to approach ESG investing. We have a 360-degree view of analyzing ESG risks from all parts of a company or country's stakeholders. Further, we have our proprietary methodology to bring that information to bear, to score that fairly. Christian, can you talk us through your approach to investing in sovereigns with an ESG-considerate lens?
Christian DiClementi: The way we think about investing in sovereigns from an ESG perspective is very much aligned with how we think about investing in corporates from an ESG perspective. Clearly, governance concerns rank quite high whenever we take on a new sovereign investment.
PO: Can you walk me through a specific example of how ESG materially impacted a country's bonds?
CD: Suriname would be a great example. In 2016, the country came to market touting plans of increased transparency, strong governance and separation of power. A few years after the country issued, we started to notice some red flags, particularly around transparency, as the government was unwilling to release some important financial data we deemed critical for the investment.
PO: After the government failed to release that information, what was the end result? What happened to bond prices?
CD: Well, by 2020, about four years after their debut issuance, the country defaulted on their debt. And because the issuer has been unable to resolve or achieve a comprehensive debt restructuring with investors, those investors are now left with meaningful losses, upwards of 30%. So these ESG considerations are not only impactful from an environmental, social and governance perspective, but they're also very impactful for client outcomes.
PO: Thanks, Christian, for your insights today. We can clearly see that ESG risks are true credit risks.
The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams and are subject to revision over time. AllianceBernstein Limited is authorised and regulated by the Financial Conduct Authority in the United Kingdom.
The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams.
About the Authors
Christian DiClementi is a Senior Vice President and Lead Emerging Market Debt Portfolio Manager at AB. He is also a member of the Global Fixed Income, Absolute Return and Income portfolio-management teams, and oversees emerging-market investments across AB's suite of fixed-income products. DiClementi joined the firm in 2003. Prior to becoming a member of the Emerging Market Debt portfolio-management team in 2013, he served as a member of AB's Economic Research Group, focusing mainly on sovereign fundamental research for the Caribbean, Central American and Latin American regions. Previously, DiClementi worked as an analyst in the firm's Quantitative Research Group, with an emphasis on global sovereign return and risk modeling, and as an associate portfolio manager responsible for municipal bond portfolios. He holds a BS in mathematics (summa cum laude) from Fairfield University. Location: New York
Patrick O'Connell, CFA is a Senior Vice President and Director of Fixed Income Responsible Investing Research. In this role, he is part of the leadership team that develops responsible investment strategy across AB's Fixed Income business, particularly related to integrating environmental, social and governance considerations throughout the team's research and engagement. Previously, O'Connell served as a corporate credit research analyst, focusing on emerging-market corporates in Latin American and African countries. He joined the Emerging Markets research team in 2013 after working as a credit analyst covering US high-yield energy credits at AB. Prior to joining the firm in 2012, O'Connell was a desk analyst at UBS Investment Bank, where he helped to allocate capital on the trading desk. He holds a BS in accounting and finance (magna cum laude) from Villanova University and is a CFA charterholder. Location: New York
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