:quality(75)/cloudfront-us-east-1.images.arcpublishing.com/bloomberglinea/N7NEK3ODSG7WWRBF47YWS2KVKE.jpg "The fund’s clients understand that “for now we’re only focused on the credit risk” of companies such as Petroperu, even if they’re a “total disaster currently” from an ESG perspective, said Tina Vandersteel.")
Bloomberg — Tina Vandersteel favors the bonds of some big polluters, a strategy that sets her apart from a crowd of investors who are caving in to pressure to ditch such assets.
Vandersteel, a three-decade bond veteran at Grantham Mayo Van Otterloo & Co., is buying debt sold by Latin American oil and gas companies such as Petroperu and Petroleos Mexicanos. In avoiding these securities, investors are overlooking company plans for improving their environmental, social and governance scores, she said.
The fund’s clients understand that “for now we’re only focused on the credit risk” of companies such as Petroperu, even if they’re a “total disaster currently” from an ESG perspective, said Vandersteel, the Boston-based head for emerging country debt. “We’re getting paid a bit of a premium from people who are bailing on the company because of its current ESG metrics, not giving credit for the path that it’s charting for its own future.”
Vandersteel’s strategy shows there is value in this corner of the market even as a growing number of funds try to sharpen their environmental offerings to appease the ever-increasing ESG demands of pension clients. These requirements can leave some money managers in a bind as they are forced to shun assets that can help them meet their performance targets.
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The tension is something Vandersteel is aware of even as she seeks to bolster the returns of her portfolio. The money manager is engaging with the management of the respective companies to ensure their ESG scores improve, she said.
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We “have to be forward-looking in what we’re doing,” said Vandersteel, adding that the firm’s European funds comply with Article Six of the European Commission’s Sustainable Finance Disclosure Regulation. The rule requires that financial market participants disclose how sustainability risks are integrated in their investment decisions, according to Deloitte.
In looking at the bonds of energy firms, Vandersteel is considering the zero-volatility spread, which refers to a constant yield spread over a zero-coupon government bond or interest-rate swap.
GMO has a reputation for sustainable investing, with co-founder Jeremy Grantham at the forefront of the climate change fight. Green investments may falter, but Grantham argues that’s a risk the ultra-rich should be willing to take.
--With assistance from Ruth Carson and Masaki Kond
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