ESG rankings are calculated at the company level. The long-dated bonds and short-dated bonds issued by a company carry the same ESG risk over the duration of these bonds.

Question

BlackTom AI · Accepted Answer

Consider the statement about ESG rankings and bond risk profiles. 
Option 1: True. This would claim that ESG rankings are computed at the company level and that long-dated and short-dated bonds issued by the same company carry identical ESG risk over their respective durations. While it's true that ESG rankings are typically assessed at the issuer level, the second part about equal ESG risk across different bond maturities is problematic. ESG risk is time-dependent: longer-dated bonds expose investors to ESG-related risks over a longer horizon, which can amplify or alter the risk profile compared to shorter-dated bonds. This makes the blanket claim questionable. 
Option 2: False. The statement that ESG rankings are issued at the company level is broadly accurate, but the assertion that long-dated and short-dated bonds carry the same ESG risk over the duration of these bonds is not generally correct. Different maturities imply different exposure periods to ESG factors (e.g., governance, climate transition risk, regulatory changes). Therefore, the ESG risk is not necessarily the same for bonds of different tenors issued by the same company. In addition, investors’ sensitivity to ESG issues can vary with bond duration, liquidity, and the issuer’s evolving ESG performance, which can diverge between short and long maturities. 
In sum, the first portion aligns with common practice, but the second portion overlooks the time-variant nature of ESG risk across bond tenors, making the overall statement inaccurate. 
If you consider the broader context, issuer-level ESG metrics provide a static snapshot up to a point in time, whereas the funding instruments (short vs long) encounter different risk horizons and potential ESG-related events. This nuance explains why the claim about equal ESG risk across maturities is not generally valid.

25847 Sustainable Finance - Spring 2025 Quiz 8: Topic 8: ESG Integration into Fixed Income

ESG rankings are calculated at the company level. The long-dated bonds and short-dated bonds issued by a company carry the same ESG risk over the duration of these bonds.

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