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Sovereign bonds: Give us an E, give us an S… but maybe hold the G

Investors should stop pretending to care about ESG risks.


If their own research is to be believed, the world’s largest asset managers are fully seized of the importance of taking environmental, social and governance (ESG) risks into consideration when investing in sovereign Eurobonds.

Yet time and again, when it comes to the crunch, those same fund managers happily load up with long-term debt from regimes with weak governance and high political risk.

Take two recent bond sales from central and eastern Europe. On June 17, Belarus’s government raised $1.25 billion of funding – most of it with a maturity of more than 10 years – from international investors.

Two days later, the arrest of a leading opposition candidate for August’s presidential elections sparked a wave of protests, which were repressed with characteristic severity. Prices of the newly minted bonds duly plummeted.

Why were global funds happy to invest in the bonds of two notorious post-Soviet basket cases? The answer is the same today as it has been for decades, if not centuries

Buyers of Ukraine’s 12-year bond were luckier. On July 2, policymakers agreed to cancel the deal, which had already priced, after the resignation of respected central bank governor Yakiv Smoliy threw local markets into disarray.

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