Publication: A New Dawn: Rethinking Sovereign ESG
Loading...
Published
2021-06-07
ISSN
Date
2021-06-14
Editor(s)
Abstract
Environmental, social, and governance (ESG) investing is quickly becoming ordre du jour in sovereign debt investing. There remains, however, lack of clarity around frameworks for scoring sovereign ESG performance, industry practices, and the definition of sustainability itself. This World Bank publication consists of two independent reports. The first part is written by the World Bank and takes stock of the current sovereign ESG investing framework and proposes improvements. The second part presents a survey on ESG practices among emerging market (EM) sovereign debt investors conducted by J.P. Morgan (JPM), which launched the first EM sovereign ESG index in 2018. This publication is a result of the World Bank's proactive engagement with stakeholders on pertinent sovereign ESG issues and is part of a publication series under the auspices of the Global Program on Sustainability (GPS).
Link to Data Set
Citation
“Gratcheva, Ekaterina M.; Gurhy, Bryan; Emery, Teal; Wang, Dieter; Oganes, Luis; Linzie, Jarrad K.; Harvey, Lydia; Marney, Katherine; Murray, Jessica; Rink, Rupert. 2021. A New Dawn: Rethinking Sovereign ESG. Equitable Growth, Finance and Institutions Insight;. © World Bank. http://hdl.handle.net/10986/35753 License: CC BY 3.0 IGO.”
Digital Object Identifier
Associated URLs
Associated content
Other publications in this report series
Journal
Journal Volume
Journal Issue
Collections
Related items
Showing items related by metadata.
Publication Demystifying Sovereign ESG(World Bank, Washington, DC, 2020-12-31)The evolution of sustainable finance to mainstream finance has been motivated by a growing demand for the financial sector to play a greater role in the transformation of the current economic model into a more sustainable one. The introduction of the United Nation’s (UN) Sustainable Development Goals and the Paris Agreement on climate change in 2015 have helped galvanize a societal shift to ensure a sustainable future and to fight climate change in particular. As a result, the pace of environmental, social, and governance (ESG) integration, which has become the most prevalent form of sustainable finance, has accelerated in recent years. Market participants continue to grapple with adapting the ESG framework to the sovereign context, despite significant progress of ESG integration in the corporate bond and equity asset class. This challenge is due to the multifaceted nature of ESG-related issues facing governments in relation to corporate entities, as well as a more complex transmission mechanism of the sovereign debt asset class to sustainable outcomes in the real economy. This paper demystifies sovereign ESG as a distinct segment of the ESG sector by assessing the major sovereign ESG providers that have laid the foundation for the operationalization of ESG investing in sovereign fixed income markets.Publication Credit Worthy(World Bank, Washington, DC, 2022-01)The increasing role of the financial sector in the move toward a more sustainable economic model continues apace. The Coronavirus (COVID-19) shock shone a light on the need for all society to correct course, and the financial sector is responding. The pace of environmental, social, and governance (ESG) integration into investment decisions, which has become the prevalent form of sustainable finance, continues to accelerate. These developments reflect changing societal perspectives that challenge the traditionally ingrained investment approaches that have evolved over many decades. Against this backdrop, various financial sector stakeholders continue to evaluate how their role, products, and tools should adapt to this evolving landscape. This paper focuses on sovereign credit ratings and empirically assesses how broad sovereign ESG factors as well as the ESG factors specific to a country’s national wealth and management of risks and opportunities related to so-called stranded assets like fossil fuel resources are manifested in sovereign credit rating assessments.Publication The Potential Implications of Economic and Social Rights for Sovereign Debt Investing(World Bank, 2023-05-24)This paper discusses both the relevance of economic and social rights (ESRs) for environmental, social, and governance (ESG) investing in the sovereign debt asset class and how to start incorporating these rights into the investment process in a practical way. Many in the investment industry recognize the potential role that investors can play in influencing a country’s decisions on environmental and social issues, including human rights. Investors are also increasingly acknowledging the potential to influence a sovereign’s actions on social issues, such as ESRs, given the state’s direct role in providing a pathway to social advancement for its citizens. The rest of this paper is organized as follows. Section 2 explains the relevance of ESRs to the sovereign debt asset class. Section 3 introduces the income adjusted ESR dataset, and section 4 illustrates the insights that this dataset can provide for sovereign debt investors. Section 5 provides one practical example of how sovereign debt investors could use such a dataset in practice. Section 6 presents our conclusions.Publication Paving the Path(World Bank, Washington, DC, 2021-05-24)Climate risks are on the rise globally. For emerging market countries such as Chile, these risks can manifest as an increased propensity for drought, wildfires, flood events, and landslides. As a result, governments are increasingly prioritizing policy solutions that will support an economic transition to mitigate the impact of climate change while also supporting households and communities as they adapt to the changing risk landscape. The financial sector is playing a key role in supporting a just economic transition. For many emerging market countries, the sovereign is the largest issuer of domestic debt, and the instruments and issuance path they choose can be key toward influencing downstream financial sector activity. For their part, global investors are becoming more attuned to the environmental, social, and governance (ESG) factors that underpin sovereign debt instruments. This report explores Chile’s sovereign issuer options, opportunities, and challenges through the lens of its recent decisions to issue green, social, and sustainable debt instruments.Publication Riding the Wave(World Bank, Washington, DC, 2020-10-22)The world is on an unsustainable path. Financial sector participants are becoming more conscious of the impact of their economic, social and environmental footprint. As the investor community makes progress towards integrating environment, social and governance (ESG) factors into investment mandates, particularly for equities and corporate debt, integrating these factors into the sovereign debt asset class has lagged- although investment practices and approaches are evolving. As the financial ecosystem changes, the Debt Management Office (DMO), as the main financing arm of the state, would benefit greatly from understanding how these changes affect the core Public Debt Management (PDM) mandate and how to respond to the growing investor demand for sustainable finance. The paper presents an overview of areas in which DMOs can respond to the changing world and proposes six ESG market readiness factors as well as a framework to help formulate DMO strategy in the area of ESG investing. The paper also concludes that in less developed markets, given weak institutional arrangements, it is often better to concentrate development efforts on the local capital market as this will ultimately support a more sustainable economy in the long run.
Users also downloaded
Showing related downloaded files
Publication The Argentine Pension System, its Success and Challenges(World Bank, Washington, DC, 2022)Over the last two decades, the Argentine pension system has made extraordinary progress in extending coverage--now reaching to nearly one hundred percent of the elderly--by expanding its non-contributory scheme and establishing automatic benefit adjustment mechanisms and increasing the replacement rate. Nonetheless, important challenges remain which may require public policy interventions in the near future. Some challenges are relevant in the short term, relating to coverage and equity of the system, while others are important in the longer term associated with the financial sustainability of the system in the context of population aging. The non-contributory benefits to reduce the coverage gap did not consider the labor history of workers and their past partial contributions, generating a horizontal inequality problem. Additionally, the coexistence of different pension schemes is a source of inequity within the national system, where provincial schemes and special and differential regimes coexist, each with its own rules and different generosity of benefits. The achievements of the pension system in terms of coverage and adequacy have impacted costs. In 2020, public spending on pensions reached almost 12 percent of GDP, similar to that of developed countries where population aging is considerably higher. In this context, policy options presented in this paper seek to redefine the objectives of the system, seeking greater equity and sustainability. Based on this premise, the document explores the benefits of redesigning the system using a two-pillar model, i.e. a universal and basic benefit related to the protection against the risk of ending up in a situation of poverty plus a contributory scheme, proportional to the contribution made by workers during their employment history. Addressing the coverage issue by incorporating this dimension would not only improve equity of contributions and benefits, but also generate incentives to extend the working life of older adults. At the same time, a strategy that harmonizes rules across different schemes, eliminates inequities and management issues, and focuses on the beneficiary —and not on the benefit— as the center of the system, would bring the model closer to a more equitable and sustainable system.Publication Digital Africa(Washington, DC: World Bank, 2023-03-13)All African countries need better and more jobs for their growing populations. "Digital Africa: Technological Transformation for Jobs" shows that broader use of productivity-enhancing, digital technologies by enterprises and households is imperative to generate such jobs, including for lower-skilled people. At the same time, it can support not only countries’ short-term objective of postpandemic economic recovery but also their vision of economic transformation with more inclusive growth. These outcomes are not automatic, however. Mobile internet availability has increased throughout the continent in recent years, but Africa’s uptake gap is the highest in the world. Areas with at least 3G mobile internet service now cover 84 percent of Africa’s population, but only 22 percent uses such services. And the average African business lags in the use of smartphones and computers as well as more sophisticated digital technologies that catalyze further productivity gains. Two issues explain the usage gap: affordability of these new technologies and willingness to use them. For the 40 percent of Africans below the extreme poverty line, mobile data plans alone would cost one-third of their incomes—in addition to the price of access devices, apps, and electricity. Data plans for small- and medium-size businesses are also more expensive than in other regions. Moreover, shortcomings in the quality of internet services—and in the supply of attractive, skills-appropriate apps that promote entrepreneurship and raise earnings—dampen people’s willingness to use them. For those countries already using these technologies, the development payoffs are significant. New empirical studies for this report add to the rapidly growing evidence that mobile internet availability directly raises enterprise productivity, increases jobs, and reduces poverty throughout Africa. To realize these and other benefits more widely, Africa’s countries must implement complementary and mutually reinforcing policies to strengthen both consumers’ ability to pay and willingness to use digital technologies. These interventions must prioritize productive use to generate large numbers of inclusive jobs in a region poised to benefit from a massive, youthful workforce—one projected to become the world’s largest by the end of this century.Publication The Evolution of Local Participatory Democracy in Nepal(Washington, DC: World Bank, 2025-11-05)Nepal is, according to its constitution, among the world’s most decentralized countries, with a long and complex tradition of local-level public participation. This paper traces the evolution of Nepal’s modern participatory institutions, examining the extent to which they are “induced” by external interventions versus being “organically” rooted in indigenous practices. The paper identifies three broad phases: an initial focus on participation in project implementation; a subsequent phase that expanded citizen engagement; and a third phase of citizen empowerment, culminating in the 2015 federal constitution, which granted unprecedented local autonomy. The analysis yields five key findings. First, over the past 50 years, successive reforms have progressively expanded opportunities for citizens to influence local decision-making. Second, these reforms have integrated traditional participatory mechanisms into formal institutions of local government. Third, although central-level initiatives exist, most participatory platforms continue to operate at the local level. Fourth, the federal constitution has created a new landscape of local democracy, embedding autonomy and accountability. Fifth, although they are still valued in many ethnic and territorial communities, traditional participatory practices are gradually disappearing. The paper concludes by offering policy recommendations to help donor agencies and governments strengthen Nepal’s democratic trajectory. It argues that effective interventions should build on Nepal’s deep participatory traditions while recognizing the constitutional reality of far-reaching local autonomy.Publication Implications of Heightened Global Uncertainty for the East Asia and Pacific Region(Washington, DC: World Bank, 2024-08-26)Macroeconomic, financial, and policy-related uncertainty have increased since the COVID-19 pandemic globally and in individual developing economies in the East Asia and Pacific (EAP) region. Uncertainty shocks can transmit across borders and their economic consequence is quite sizeable, affecting both the financial sector and the real economy in the EAP region.Publication Global Economic Prospects, January 2025(Washington, DC: World Bank, 2025-01-16)Global growth is expected to hold steady at 2.7 percent in 2025-26. However, the global economy appears to be settling at a low growth rate that will be insufficient to foster sustained economic development—with the possibility of further headwinds from heightened policy uncertainty and adverse trade policy shifts, geopolitical tensions, persistent inflation, and climate-related natural disasters. Against this backdrop, emerging market and developing economies are set to enter the second quarter of the twenty-first century with per capita incomes on a trajectory that implies substantially slower catch-up toward advanced-economy living standards than they previously experienced. Without course corrections, most low-income countries are unlikely to graduate to middle-income status by the middle of the century. Policy action at both global and national levels is needed to foster a more favorable external environment, enhance macroeconomic stability, reduce structural constraints, address the effects of climate change, and thus accelerate long-term growth and development.