Better incentives can be found in the sustainability-linked bond market, where money managers with specific mandates to invest in ESG debt typically exact heavier punishments from companies that miss their targets. Penalties for bonds typically range between 25 basis points and a full percentage point depending on the issuer, market experts say.
Advocates for stricter standards across the industry say another critical issue is to ensure that the goals set by companies are ambitious and require firms to stretch from their current path.
American Campus Communities listed three main ESG objectives when it closed on its revolver four months ago. In addition to energy efficiency improvements, it sought 30% representation from women, racial or ethnic minorities, and members of the LGBTQ+ community on its board, and targeted 70% for its workforce.
But as of the end of 2020, the Austin, Texas-based firm had already met its two diversity targets, according to its annual ESG report.
Impax’s Schwab said that ideally corporations would commit to material improvements in their metrics and steep penalties if they fail to achieve them.
“We are extremely supportive of companies that are measuring and setting goals,” he said. “Companies are starting to get a bit more serious, but that’s not enough.”
--With assistance from Jacqueline Poh and Paula Seligson.
This article was provided by Bloomberg News.