In summary, recent reports indicate that Glencore may have considerable exposures to methane emissions that previously have not been in the public eye.
Also, there is news that activist hedge-fund Bluebell Capital Partners has asked for a split of the firm into coal and non-coal components.
First, we believe that an unremedied methane situation at the company would make it a difficult position for asset owners/managers trying to manage their funds into the EU’s SFDR Article 8 or 9 classification.
This has significant implications for such investors who are currently invested in iTraxx Main of various series as through that they have exposure to the name. In particular, for those structures who are long risk in the index, this poses a problem, as they are carrying a bond equivalent financing relationship.
For such long iTraxx Main investors, a potential solution would be to hedge out the Glencore exposure (by buying single name CDS protection on Glencore, matched maturity and notional exposure), alternatively to – where possible – shift into the iTraxx ESG index.