Patrick O'Connell: At AllianceBernstein, we feel like we have a differentiated way to approach ESG investing. We have a 360-degree view of analyzing ESG risks from all parts of a company or country's stakeholders. Further, we have our proprietary methodology to bring that information to bear, to score that fairly. Christian, can you talk us through your approach to investing in sovereigns with an ESG-considerate lens?
Christian DiClementi: The way we think about investing in sovereigns from an ESG perspective is very much aligned with how we think about investing in corporates from an ESG perspective. Clearly, governance concerns rank quite high whenever we take on a new sovereign investment.
PO: Can you walk me through a specific example of how ESG materially impacted a country's bonds?
CD: Suriname would be a great example. In 2016, the country came to market touting plans of increased transparency, strong governance and separation of power. A few years after the country issued, we started to notice some red flags, particularly around transparency, as the government was unwilling to release some important financial data we deemed critical for the investment.
PO: After the government failed to release that information, what was the end result? What happened to bond prices?
CD: Well, by 2020, about four years after their debut issuance, the country defaulted on their debt. And because the issuer has been unable to resolve or achieve a comprehensive debt restructuring with investors, those investors are now left with meaningful losses, upwards of 30%. So these ESG considerations are not only impactful from an environmental, social and governance perspective, but they're also very impactful for client outcomes.
PO: Thanks, Christian, for your insights today. We can clearly see that ESG risks are true credit risks.