Investors need to pick their battles for the concept of "deny the debt" to work in pushing global companies closer to alignment with the Paris Agreement on climate change.
"It's not necessarily the highly credit-rated big firms we are looking at first," said Andreas Hoepner, professor of operational risk, banking and finance at University College Dublin's Smurfit Graduate Business School. "Instead, we're looking at those with lower credit ratings because those are the ones not oversubscribed" when it comes to bond issuance.
The weakest links in the fossil-fuel value chain — or any ESG issue — are companies "with the highest risk operations and low credit ratings. That's the type of firms where if they don't get refinancing or (experience) higher costs, bigger firms might end up having to internalize risks which they would prefer to have externalized."
"It's gradually tackling the polluting supply chain, not necessarily the biggest firms first,'' Mr. Hoepner said. "Here the most impactful thing is winning the smaller battles and gradually isolating the bigger firms."