Some money managers are waking up to Wall Street's ESG scam meant for green-minded investors who pretended to care about the environment but had found a quick and efficient way of fast-tracking gains. We've called this scam out during the ESG boom days early in the pandemic (see from Feb 2020 "Behold The "Green" Scam" and from April 2020 "The Fraud That Is ESG Strikes Again: Six Of Top 10 ESG Funds Underperform The S&P500").

Now Matt Lawton, T. Rowe Price Group Inc.'s sector portfolio manager in the Fixed Income Division, has come out in an interview, slamming sustainability-linked bonds, or SLBs. He said these green corporate bonds are examples of the most "egregious behavior" by Wall Street banks and companies who take advantage of skyrocketing demand for green investments. 

"It's becoming increasingly difficult to find credible SLBs," Lawton said in an interview quoted by Bloomberg. "The banks are pitching these structures really hard so I definitely approach them with a healthy degree of skepticism."

Companies have been rushing to issue SLBs to exploit cheaper borrowing costs due to the high velocity of money flowing into ESG investment funds. Sales of the bonds soared to a record $110 billion in 2021, and Moody's ESG Solutions predicts $150 billion by the end of the year. 

The Baltimore-based investment management firm with $1.4 trillion of assets under management is the latest heavyweight in the financial community to speak out against SLBs. Last year Nuveen, a Chicago-based asset manager, said there were issues with the bonds and understanding of how the use of proceeds was deployed.

"The banks are trying to structure them in such a way that is attractive for the issuer and right now investors are falling over themselves to buy these bonds. I don't know how much discernment is actually happening on the investor side," Lawson said. 

Lawton noted the absurdity behind some SLBs. He pointed out UK-based grocery-store chain Tesco Plc's green bonds that were priced in January 2021. The company raised 750 million euros in an 8.5-year bond to cut greenhouse gas emissions by 60% through 2025-26, though even before the deal, Tesco achieved a 50% reduction in emissions. 

Lawton said the enforcement mechanisms behind SLB deals are lacking. Here are other examples of companies taking advantage of SLBs with call features that allow them to circumvent green goals via exercising call options:

For example, Level 3 Communications Inc.'s $900 million SLB deal, which also priced in January 2021, can be repurchased from investors in January 2024, before any penalties for not meeting the sustainability targets even kick in. Level 3 was acquired in 2017 for $34 billion by communications service provider Lumen Technologies Inc. (formerly known as CenturyLink).

Lumen's global issues director Mark Molzen said in an emailed response that a call feature is common in these sort of instruments and a matter of financial prudence for any issuer to manage their interest rate exposure and balance sheet flexibility over time. 

"The fact that we were able to successfully issue sustainability notes without having to forego these sort of basic features shows the natural demand for these sorts of instruments," Molzen added.

Chemicals firm Nobian Finance BV also sold an SLB that's callable before the targeted goals, meaning the company could evade any potential penalty simply by exercising the option to repurchase the securities.

In its emailed response, Nobian said that sustainability is one of its business priorities and the fact that it pays back debt at specific dates has "no impact on our commitment to reach our sustainability targets and our efforts to report transparently about our progress on an annual basis." --Bloomberg 

In June, the International Capital Market Association, which sets voluntary regulations in the ESG debt market, updated guidelines for issuing SLBs after it became evident transparency issues persist. 

Lawton added the high demand for SLBs allows Wall Street banks to water down ESG targets for corporations:

"The banker could theoretically say to their issuer, 'Here are the bare minimum targets you need,' and the market will accept it," he added.

ESG-related bond sales have been a boon for Wall Street, and many banks raked billions of dollars in advising and underwriting fees: It's big business disguised as 'saving the planet.'  

Wall Street's ESG craze is nothing more than a scam. Another investor, Vivek Ramaswamy, who authored the book "Woke, Inc." has argued that business and politics should remain sequestered from one another and calls on corporations to slow spending on their energy transition and environmental plans.