As we have highlighted, it is not possible to invent a fixed formula or structure when it comes to influencing companies. The approach will depend on the issue under consideration, the characteristics of the company we are dealing with, and the investment strategy of the fund (active or passive). Balancing these considerations is not an exact science, but practice makes perfect. We have learned that aligning interests, balancing a thorough understanding of the issues and conducting constructive discussions are essential for addressing each company’s risks of doing business. Sometimes we also learn which companies are unwilling or unable to improve – which is an important lesson in itself. For those that are willing to adapt to the demands of responsible investors, we monitor any relevant indicators of change and, in particular, we view any commitment to address ESG issues as measure of progress. In the eyes of a bondholder whose focus is on protecting downside risks, any progress is good progress and, fortunately, the market is never too far behind in recognizing this.
Sparinvest has first-hand experience that companies will respond to constructive dialogue on ESG matters and work with bondholders to reduce the risks of doing business. But imagine how much more influential bondholders could be if they were to work more with companies on ESG or join forces to tackle major sustainability themes in the same way that shareholders do.
*Relevant academic studies:
Cheng, Beiting, Ioannis Ioannou and Serafeim, Corporate Social Responsibility and Access to Finance, Harvard Business School Working Paper, No. 11-130, June 2011,
Bhojraj & Sengupta, Effect of corporate governance on bond ratings and yields: The role of Institutional investors and outside directors, Journal of Business vol.76, no.3, 2003,
Gunnar Friede, Timo Busch & Alexander Bassen, ESG and financial performance: aggregated evidence from more than 2000 empirical studies, Journal of Sustainable Finance & Investment, 5:4, 210-233, 2015
Oikonomou, Ioannis and Brooks, Chris and Pavelin, Stephen, The Effects of Corporate Social Performance on the Cost of Corporate Debt and Credit Ratings (February 2014). Financial Review, Vol. 49, Issue 1, pp. 49-75, 2014.
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