Nuveen ESG expert hopes for more sustainable beef bonds as market digests Marfrig

There was a backlash but Liberatore says it helps finance the transition of a sector

The head of fixed-income responsible investing at US asset manager Nuveen says he hopes to see more sustainable transition bonds from Brazilian beef producer Marfrig and its peers in the future, despite backlash from some corners of the market over the transaction.

Speaking to RI this week, portfolio manager and ESG specialist Stephen Liberatore said he bought the controversial Marfrig notes for some of Nuveen’s 12 ESG-focused mandates, which have combined assets of more than $10bn. Nuveen is a subsidiary of the US finance giant TIAA.

Liberatore was until recently a member of the executive committee of the Green Bond Principles and said he considered the Marfrig bond to be compatible with Nuveen’s criteria for use-of-proceeds bonds – in contrast to some investors that say the deal does not constitute a green or sustainable bond.

Marfrig, one of the world’s biggest beef producers, received accusations of greenwashing when it came to market with the ‘sustainable transition’ notes earlier this month, because of the widely-held view that the beef industry is fundamentally incompatible with a low-carbon world.

The $500m of debt that Marfrig raised will be spent on tightening environmental and social standards for supply chains, rather than moving the business away from traditional red meat production.

“There is no universally accepted definition of a green bond, and there is likewise no set definition for a transition bond,” said Liberatore. “For some investors, ‘transition’ means a shift to a 1.5°C economy, and for others it will be a transition to a more sustainable business model that causes less environmental and social harm.” He added that such definitions “do not have to be mutually exclusive”.“This is the first transition bond we’ve invested in because it does exactly what a transition bond should do, in our view: it’s a security that helps finance the transition of a sector – and the companies within it – towards a more sustainable future.”

Liberatore said Marfrig’s commitment report on key performance indicators like satellite monitoring of cattle “could prove to be transformative” when it came to reining in deforestation in the Amazon – a significant driver of climate change.

“It does exactly what a transition bond should do”

The Marfrig deal tightened from initial price thoughts of “high 6s to 7%” to 6.625%. Those close to the deal claim a lot of dedicated ESG investors dropped out of the order book as a result. Liberatore denied ‘paying up’ for the bond because it was labelled, but said that Marfrig benefited from the label because it widened its investor base.

“We wouldn’t buy Marfrig’s normal debt, so this [deal] grows their pool of investors and allows them to talk positively about what they’re doing. That is how we encourage issuers to change their behaviour – by providing that capital and that dialogue and that wider investor base.”

Liberatore said Nuveen “would love to see Marfrig do more deals that look like this, if they have capacity”, adding that this would require the issuer to meet their commitments and then expand them to a bigger proportion of their supply chain.

“That’s eventually how you get the other large protein providers to notice that this is a good move, and that’s how you transition a whole industry. We should be attempting to make progress in the ways that we believe can make a material impact, because the alternative for some industries might be making no progress at all.”