2bn loan tied to ESG metrics

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ESG Innovation: rate on Danone’s EUR2bn 5 year syndicated credit directly tied to ESG metrics. 2 components: i) B-Corps certified sales ii) Ratings based on a) Sustainalytics, b) Vigeo Eiris

 

Implications: single demonstration that ESG directly impacts cost of debt and —> weighted cost of capital and thus impacting firm value via discount rate.

 

12 bank* syndicate shows serious financial institutional backing (although risk to banks likely considered low)

 

Lends weight to notion of ESG ratings. Lends credibility to B-corps certification process.

 

Concentrates power in ratings and certification providers.

 

Critique: following the criticisms of Cary Krosinsky on fund ratings** this potentially emphasises backward looking tick box scores too strongly.  ESG ratings providers show low (but positive correlation) approx 0.3 in this study***

 

Counter: use of both B-corps impact methodology and two forms of ESG ratings, all independent (although question of who pays fees cf. standard bond credit ratings) reduces reliance of single interpretation.  Single company ratings different from portfolio scores.

 

Further implications: ESG and B-Corp supporters can argue ESG direct meaningful financial and cost of capital implications.  Critics can still invoke virtue signalling concerns.

 

Models for sustainable finance are still developing (cf. green bonds) but if genuine incentives exist and those incentives credibly encourage long-term sustainable strategies then long-termism supporters should be enthused.

 

Of note: MSCI is not used as one of the ESG rating providers. Some observers might suggest this shows the French/Euroland strength of Vigeo Eiris over MSCI

 

 

*Bank syndicate (Best of my belief):  BNP Paribas,  Societe Generale, Credit Agricole, Natixis, HSBC, Citibank, JPMorgan, Barclays, ING, NatWest, MUFG and Santander.

 

Link to Danone Statement:

**Cary Krosinsky: Failure of Fund Sustainability ratings. 

*** Chatteji et al.  (2014).  Do [ESG/CSR] Ratings Converge ? 

 

When a board can't detect fraud...

I’m still utterly amazed at large company fraud. Christo Wiese owns 23% of Steinhoff and was Chair, and didn’t know anything about it at Steinhoff.  Highlights to me that choosing the CEO is still one of the most important if not the most important job of a board.

“Normally when you’re in a business, and you’re responsible, you can see the problems coming, you’re aware of them,” Mr Wiese said. “This came like a bolt out of the blue.” “I can only say that cleverer people than this board have been duped before by people committing fraud,” he added. “To detect fraud in a company is an extremely difficult if not impossible task and it becomes more difficult when, as is alleged in this case, the CEO is directly involved.”

Jan 31, FT article here  and  Dec 2017, Bloomberg article here   

Also, highlights the problems the board has if it can't assess what management are showing them. In the light of the UK's Carillion failure, its board have been given a hard time too.

 

Plastic Problems

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Continue to be amazed at Humans poor skills in thinking long-term (I include myself here) or perhaps simply valuing short term convenience (packaging!) over unseen consequences. This applies to investing, as to much of life.

Along side many other problems, we seem to have been sleep walking into a plastic ecological disaster. Let’s hope human ingenuity can bend this problem away.

Marine life is facing "irreparable damage" from the millions of tonnes of plastic waste which ends up in the oceans each year, the United Nations has warned. 7 Charts from the BBC.


Beaches that were covered with pristine sand in the 1990s are today littered with plastic debris, washed up from countries around the Pacific Rim and beyond — an estimated 37 million pieces, weighing 18 tonnes. (Independent article)


“This is just the tiniest snapshot of our problem with plastics. Every year an estimated eight million tonnes of the material flow into the oceans. And, over the past few months, there has been a huge increase in public and political concern about this marine pollution, to a level where it is approaching climate change as an environmental issue.”  A detailed look in the FT (behind pay wall) in a very good long read.

Another summary of the problem from the UK Natural History Museum.