Sustainability-linked loans carry risks

Good article from Bloomberg’s Greg Ritchie and Alastair Marsh highlighting how the big investment banks are starting to tighten their risk parameters around ESG debt markets, particularly sustainability linked loans (SLL). The big concern for these SLLs is that there is little public documentation surrounding the ESG claims backing the loans. Without being a regulated industry, lenders are left to execute their due diligence from material provided exclusively from the borrower. While I was frustrated with the legal and compliance frameworks I needed to navigate during my time in traditional finance, we need to call on stricter scrutiny from our industry and regulators. Finance is critical to address climate change, but the bad actors need to be weeded out of the market. https://lnkd.in/ddvrQCyT

It ain't easy being green . . .

The greenwashing in ESG bonds is MASSIVE. I'm glad to see banks getting called out on it, but frankly, many asset managers *knew* ESG bonds were primarily greenwashing but didn't care because part of incentive compensation and many promotional opportunities were tied to ESG metrics. When I was at CalPERS, we didn't have a mandate to buy ESG bonds, but there was significant pressure to evaluate every potential ESG opportunity. Due to that, I evaluated thousands of green bonds during my career there, but I never purchased a single one...not because I was anti-ESG, but because they *ALWAYS* traded at a higher price for the same risk that you could purchase elsewhere without the green bond label. One time, I asked a Wall Street trader how I could possibly make money on these expensive ESG bonds, and he told me that demand for ESG bonds would only increase, so regardless of them trading rich vs other bonds, they would soon be even richer, so I could sell them to the next sucker at a higher price. I told him thanks but no thanks. Others should have done the same. https://lnkd.in/gqQTX9_M

"Sustainable-Linked Loans let borrowers and lenders say that a loan is tied to some environmental or social metric. But the documentation to back those claims generally isn’t available to the public, nor is the market regulated." https://lnkd.in/e-T2w5ti

A very interesting read. Not to mention an open invitation to look into the purpose of ESG.

#Bankers servicing one of the world’s biggest #ESG debt markets are now actively seeking legal protections to guard against the potential #greenwashing allegations that may be ahead.

#ESG whitewashing becomes a reputation risk… time for honesty and integrity…balanced accounting and responsible reporting. A balance with intellect and heart. #authenticleadership #reputation #risk

I could never see the ROI logic.

https://lnkd.in/g27JtPzE Send in the clowns and TORT lawyers.