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Abridged Version A New Dawn - Rethinking Sovereign ESG (English)

Sovereign ESG performance sets a benchmark for subnational investment decisions and is increasingly a driver of capital allocations. How market performance or country factors are used to evaluate performance and shape portfolio construction, sovereign ESG scores do not only serve to profile sovereign-level instruments, such as government bonds. Sovereign ESG scores also trickle down to subnational entities, such as municipalities and corporations. Especially in countries where data coverage and quality are lacking, country-level indicators are often used to fill in missing values for smaller entities. Furthermore, a reliable and transparent sovereign ESG framework is in high demand, as it would also enable a fairer comparison of corporates across borders. The paper identifies two structural challenges with the current sovereign ESG framework. First, sovereign ESG providers, who have laid the foundation for the operationalization of ESG investing in sovereign fixed income markets, converge on measuring good sovereign performance on governance (G) and social (S) issues but not on measuring the environment (E) pillar at the sovereign level. The second challenge is that while sovereign ESG providers converge on what good sovereign ESG performance is, that ideal is driven by an ingrained income bias.

Details

  • Author

    Gratcheva,Ekaterina M., Guhry, Bryan, Wang,Dieter

  • Document Date

    2021/06/29

  • Document Type

    Report

  • Report Number

    161130

  • Volume No

    1

  • Total Volume(s)

    1

  • Country

    World,

  • Region

    The World Region,

  • Disclosure Date

    2021/06/29

  • Disclosure Status

    Disclosed

  • Doc Name

    Abridged Version A New Dawn - Rethinking Sovereign ESG

  • Keywords

    Equitable Growth, Finance & Institutions; Gross National Income Per Capita; risks from climate change; sovereign credit risk; investment process; sovereign debt; sovereign debt market; privileges and immunity; credit rating agencies; credit rating agency; availability of data; fixed income market; sovereign credit rating; wealth of nation; data portal; income bias; sovereign issuer; environmental performance; fiduciary duty; sustainable outcomes; investment objective; sustainable finance; social factor; knowledge product; Investment Flow; Learning and Innovation Credit; sustainability analysis; ecosystem service; investment goals; financial system; government collaboration; development policy; capital stock; investment terminology; aggregation methodology; investment risk; corporate entity; information provision; asset class; mission statement; technical expertise; natural asset; environmental resource; Environmental Resources; recent development; global index; investment philosophy; small sample; investor attitude; response rate; real money; credit worthy; natural capital; regression line; richer countries; guiding principles; transparent methods; data provider; environmental indicator; investment approach; critical data; data gaps; missing data; statistical relationship; machine learning; environmental degradation; take stock; investment impact; recent years; copyright owner; institutional investor; research department; commercial purpose; sole responsibility; Financial Sector; market participant; original work; traditional investment; domestic product; proactive engagement

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Citation

Gratcheva,Ekaterina M. Guhry, Bryan Wang,Dieter

Abridged Version A New Dawn - Rethinking Sovereign ESG (English). Equitable Growth, Finance and Institutions Insight Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/479341624946145041/Abridged-Version-A-New-Dawn-Rethinking-Sovereign-ESG