AUGUST 14, 2019
Environmental, Social, and Governance (ESG) signals of countries help mitigate various risks that global investors face when investing in sovereign and sub-sovereign debt.
Investors in sovereign bonds, sub-sovereign bonds, and government-related enterprises can assess a country’s long-term credit risk with the additional insights gained from environmental and social factors. Traditional credit ratings for sovereigns and sub-sovereigns rarely feature more than a few governance factors associated with political risks, while (short-term) financial indicators dominate the credit analysis. Having a holistic view on country-level performance on Environmental, Social, and Governance metrics, however, helps to better understand the long-term risks both from a values-based and an economic perspective.
The determination of ESG country risk is important for global investors of all types. ESG country risk is not associated with a specific company, but it reflects a country’s broader business climate. Governance, the rule of law, and how a country deals with corruption (along with several socio-economic indicators) have traditionally been the core factors of traditional country risk analysis. Adding environmental and social factors to the analysis makes credit risk assessment more relevant due to financial materiality, regulation, and the increasing investor interest in ESG integration.
ISS ESG offers a range of products for assessing sovereign and country risk factors for the environment, society, and governance.
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