Global risk analytics company Verisk Maplecroft announced today the launch of its Sovereign ESG Ratings, developed to offer a set of signals for tracking the sustainability factors for sovereign debt markets. 

The new ratings assess 37 issues across nine ESG dimensions for 198 countries, including years of historical data. According to Verisk, the ratings utilize a unique methodology, based on cluster analysis, to better capture the non-linear complexity of the sovereign ESG world relative to traditional weighted averages.

David Wille, Verisk Maplecroft Principal Markets Analyst, who led the development of the Ratings, said:

“Governments are, or should be, the guarantors of last resort when it comes to human rights, prosperity and the protection of natural capital and the climate. The surge in interest in sovereign ESG investing points to how a trusted standard that robustly assesses government bond issuers is needed more than ever – this is where we aim to make the difference.”

Verisk Maplecroft stated that research into ESG data’s relationship with bond spreads shows that human rights are highly material, and that risks relating to the energy transition have now become a key factor affecting countries’ borrowing costs.

The company’s research into the data also shows that ESG issues are highly material on multiple levels, with human rights and labor rights strongly associated with lower borrowing costs for sovereigns, and environmental issues becoming key factors for debt pricing. The analysis also found that sovereign bond markets are still highly inefficient at the pricing in ESG issues, taking up to a year to reflect changes in a country’s risk environment.   

James Lockhart Smith, Head of Markets at Verisk Maplecroft, said:

“With access to Verisk Maplecroft’s Sovereign ESG Ratings, investors of all types will be better positioned to anticipate how changes in a sovereign’s ESG risk profile can impact debt pricing. Users can track how a country’s sustainability performance is evolving and watch for approaching ESG tipping points to help minimise downside risks and identify emerging investment opportunities​.”

 

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