After integrating the ESG factors, the credit spread on BR Hotels’ bonds is most likely to:

A. decrease.

B. remain unchanged.

C. increase.

Emily Marker, CFA, is a fixed-income analyst for the Namsan Funds. Her supervisor asks her to identify ESG factors and value the corporate bonds of BR Hotels, a publicly traded boutique hotel company. Marker notes that BR Hotels is a “green hotel” company that prioritizes sustainability and has successfully reduced water and energy usage at its hotels. The founding family owns 55% of the outstanding shares. Each ownership share has equivalent voting rights.The board of directors of BR Hotels consists of 15 members, with independent CEO and chairperson roles. The board includes one independent member and two women, and 20% of the board members have experience in the hotel industry.

BR Hotels has historically had a high labor turnover rate. Most of its workforce are paid at or near the minimum wage, and the company offers no health benefits. Marker and her supervisor discuss how BR Hotels will be affected by the expected passage of legislation raising the minimum wage and growing pressure to offer benefits. Marker integrates ESG factors in the investment valuation of BR Hotels’ corporate bonds.