Bond Issuers With Top ESG Ratings Include Consumer Brands and European Banks – Barron’s

Of the companies Sage assessed, 11% are privately held, which are typically not covered by the other ESG-rating frameworks mainly serving stock investors. The top-rated bond issuers range across 24 industries, including processed-food company

Campbell Soup

(ticker: CPB), consumer-goods retailer

Procter & Gamble

(PG), and ​​networking giant

Cisco Systems

(CSCO). 

While nearly two thirds of the bond issuers with top ESG ratings are U.S.-based companies, European commercial banks had a substantial presence. A more stringent regulatory environment in Europe was the main reason, says Robert Smith, co-founder and president of Sage Advisory.

European banks face more restrictions than their counterparts elsewhere, and tend to provide a greater amount of information on ESG matters, including who they’re providing finance to and what the nature of that financing is. This kind of information is still difficult to obtain for U.S. banks, says Smith.

Tech represents a large number of the top ESG companies as well, thanks to their consistent focus on employee diversity, energy management, and cybersecurity.

Interestingly, household and personal products, an industry not traditionally known for its ESG strength, was also well represented. Companies in this group rely heavily on consumer preference and sentiment, says Emma Harper, senior ESG research analyst at Sage and author of the research. As consumers become more aware of how their purchase could impact the society and environment, companies have to put extra effort into sustainable initiatives such as supply chain and the sourcing of raw material. 

“There has been a lot of push for greater transparency,” says Harper, “Companies understand that brand awareness and reputation do affect their revenues.”

Fixed-income credit ratings and ESG ratings are usually positively correlated, which means more sustainable companies often have favorable credit ratings as well. Still, this doesn’t mean there is no exception. Among the 44 bond issuers with five-leaf ratings, five are below investment grade. They are:

Seagate Technology

(STX),

Nokia

(NOK), Ball (BLL),

Host Hotels & Resorts

(HST), and

Iron Mountain

(IRM).  

Broomfield, Colo.-based packaging company Ball, for example, is highly regarded in the ESG space due to its various sustainability initiatives, such as product life-cycle assessments, carbon-footprint reduction, and energy efficiency. But the firm is a high-yield bond issuer according to Moody’s and S&P credit rating. 

Another growing trend worth observing is the increasing profile of so-called “impact bonds”—those directly addressing a particular sustainable challenge with the money raised, or setting an ESG-related goal as a condition for the bond issuance. According to the Climate Bonds Initiative, the total issuance of impact bonds reached roughly $496 billion in the first half of 2021, up 59% from the same period in 2020. About one third of the top-rated bond issuers by Sage have issued impact bonds in 2021.

Write to Evie Liu at evie.liu@barrons.com