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The Convergence of Sovereign Environmental, Social and Governance Ratings (English)

This paper studies sovereign environmental, social, and governance (ESG) ratings from the qualitative and quantitative angles. First, it introduces the landscape for sovereign ESG ratings. Second, it provides a comparison with the history of credit ratings, factoring in that ESG ratings are in an early development stage. Third, the paper reviews different actors, key issues, including taxonomy, models and data from different providers. The paper provides a qualitative assessment of the convergence of ratings among providers by introducing a factor attribution method, that maps all providers' ratings into a common taxonomy defined by the United Nations-supported Principles for Responsible Investment (UNPRI). Then, a quantitative analysis of the convergence is performed by regressing the scores on variables from the World Bank sovereign ESG database. A noticeable contribution to the literature is a high level of explanatory power of these variables across all rating methodologies, with a R2 ranging between 0.78 and 0.98. An analysis of the importance of variables using a lasso regression exhibits the preponderance of the governance factor and the limited role of demographic shifts for all providers.

Details

  • Author

    Bouye,Eric, Menville,Diane Dorothy

  • Document Date

    2021/03/15

  • Document Type

    Policy Research Working Paper

  • Report Number

    WPS9583

  • Volume No

    1

  • Total Volume(s)

    1

  • Country

    World,

  • Region

    The World Region,

  • Disclosure Date

    2021/03/15

  • Disclosure Status

    Disclosed

  • Doc Name

    The Convergence of Sovereign Environmental, Social and Governance Ratings

  • Keywords

    explanatory variable; male labor force participation rate; right to freedom of association; life expectancy at birth; sovereign rating; credit rating agencies; credit rating agency; land area; food and agriculture organization; early stage of development; measure of use; research and development expenditure; use of credit rating; data provider; unmet need for contraception; probability of default; food production index; cause of death; births per woman; Marine Protected Areas; Rule of Law; prevalence of overweight; natural resource depletion; Poverty & Inequality; Access to Electricity; total labor force; principal component; Climate Risk; risk exposure; regulatory quality; explanatory power; credit default swap; number of seats; national poverty line; access to health-care; lower carbon emission; public sector wage; quality of bureaucracy; risk of default; per capita income; freedom of expression; global credit rating; carbon dioxide problem; capital requirement; journal of finance; corporate social responsibility; drinking water services; measure of poverty; fossil fuel energy; world health organization; renewable energy consumption; natural disaster risk; renewable energy resource; annual freshwater withdrawal; Access to Education; principal component analysis; nitrous oxide emission; gender parity index; income inequality; business cycle; value added; net migration; demographic shift; peer group; fertility rate; endogenous variable; living standard; applied mathematics; machine learning; demographic change; energy security; energy transition; independent variable; journal articles; human rights; linear regression; governance rating; forest depletion; quantitative analysis; perceived risk; live birth; credit agency; government expenditure; school enrollment; Population Density; Business Climate; agricultural land; national parliament; legal right; qualitative analysis

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Citation

Bouye,Eric Menville,Diane Dorothy

The Convergence of Sovereign Environmental, Social and Governance Ratings (English). Policy Research working paper,no. WPS 9583 Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/931921615831876764/The-Convergence-of-Sovereign-Environmental-Social-and-Governance-Ratings