Public Fixed Income

Finding the Right Sovereign ESG Indicators: A Greek Tragedy?

January 2021 – 11 min read
On our mini odyssey through the vast seas of sovereign ESG indicators, we sought to identify data from reliable third parties—which would provide benchmarking criteria between countries and also serve as an effective screening tool to identify outliers.

In Greek mythology, heroes go to meet their destiny even though they know it will end tragically. The motivation is often to rise to a challenge that the gods or circumstances have forced upon them, and the only way to take control and ownership is to choose the fight, even if you get the sense that the fight may be hopeless.

In a much less emphatic way, we were in a similar state of mind when, in mid 2020, we embarked on our mini odyssey through the vast seas of sovereign environmental, social and governance (ESG) indicators. We knew the journey may be arduous—even inconclusive—as per our previously published paper on the topic. But we deemed it worth the exploit. While a case study approach will provide a more comprehensive and relevant assessment1, the questions around measurability and replicability that it could raise are understandable. In this paper, we thus seek to complement our case study approach by identifying data and scores from reliable third parties that are focused on these issues and specialized in data gathering and cleaning. In addition to providing benchmarking criteria between countries, this data can serve as an effective screening tool for sovereign analysts to identify outliers or emerging issues.
 

Tied to the Mast of Methodology (Approaching the Sirens)

Staying the course during this journey was necessary so as not to be lost among the profusion of existing ESG metrics. Any ESG methodology has to have clear objectives and clear reasons for targeting those objectives. This helps define which indicators help track country performance in reaching these objectives. Therefore, we imposed the following criteria on E, S and G indicators:

  • Set objective criteria for each pillar, i.e. what is the goal from gathering such ESG indicators?
  • Be consistent with our ESG principles including measuring policies and not outcomes, where possible.
  • Accurately predict the measurable end goal.
     

1. A forthcoming paper will provide details on the Barings sovereign ESG diagnostics methodology.

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Cem Karacadag

Head of Emerging Markets Sovereign Debt

Dr. Ricardo Adrogué

Head of Global Sovereign Debt and Currencies

Kawtar Ed-Dahmani

Managing Director, Emerging Markets Sovereign Debt

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