You are Sirikan Charoensuk, lead portfolio manager of the Mekhala ESG Leaders Fund in Bangkok. It is Saturday, 14 March 2026; the market opens on Monday, and before you touch the rest of the book you have to decide what to do with two holdings that rating agencies may downgrade within the next thirty days.
The situation
The fund invests ฿18 billion in Thai and ASEAN equities, is benchmarked to the SET ESG Index and is sold on one promise: beat the index with a portfolio whose weighted ESG rating sits near the top of the universe. In eleven sessions a commodity shock and a central-bank rate signal have taken the index down 9.0% and the fund down 12.4%. The blow landed on renewables, consumer staples and healthcare, which you overweight, and spared energy and materials, which you hold less of because of how they score.
Two-thirds of the money, ฿12 billion from European institutional investors, carries a covenant: the weighted ESG score may never fall below the 70th percentile of the SET ESG universe, audited every quarter. Two audits in a row below it and that capital may leave at no penalty. Today you are at the 73rd percentile, and the next audit is on 31 March, seventeen days away. Mekhala's board adds its own risk budget: annualised volatility of at most 18% (it is 22% today, against 14% before the shock) and a maximum drawdown of 15%, at which the book is liquidated (you are at 12.4%).
Then there are the two holdings. Holding A, 4.2% of the fund, has a labour-rights dispute open at a supplier; holding B, 3.1%, a community complaint over water. The agencies have flagged both for a possible downgrade within thirty days, and your ESG analyst puts it in one line: a downgrade of either could, on its own, take the score below the floor. Both shares have fallen with the market, and the desk reckons selling A in a single session would cost about 150 basis points of the position, around ฿11 million.
The room is split. The trading desk and the client team see two cheap stocks and agencies that are overreacting. The research team sees the covenant's two weakest points. You wrote the fund's eligibility rules yourself.