Sovereign bond issuers lack climate ambition, says $5B investor group
An alliance of bond investors representing $5 trillion in assets says its first study of sovereign issuers shows most of their climate pledges lack the necessary ambition.
The group, which calls itself the Assessing Sovereign Climate-related Opportunities and Risk project, says that just four of the 25 countries it analyzed have emissions reduction targets that are aligned with a 1.5C pathway, namely Bangladesh, Barbados, Kenya and Morocco. The UK and the U.S. are among sovereign issuers that aren’t aligned with limiting global warming to 1.5C, ASCOR said. The figures reflect a so-called fair share assessment, which takes into account a country’s historical emissions, income and population.
“Evaluating how countries manage climate mitigation and adaptation risks” will help investors in their “analysis of their fiscal sustainability,” said Carmen Nuzzo, executive director at the Transition Pathway Initiative Centre, the academic partner of the project. “It is about fair pricing and impact, not politics.”
Sustainable finance is less established in sovereign debt markets than in corporate securities, where fund managers apply an array of strategies under the rubric of environmental, social and governance investing. That’s because metrics and models designed for corporations don’t easily translate to governments, while ESG scores for countries have been criticized for being too correlated to a nation’s wealth.
ASCOR, whose members include pension funds and other institutional investors, says its data tool identifies the most critical environmental data points to be used in sovereign debt financial analysis. It aims to put “climate change at the heart of sovereign investment decision-making,” according to Victoria Barron, a
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