Sovereign Environmental, Social, and Governance (ESG) Investing: Chasing Elusive Sustainability

May 17, 2024

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Ekaterina Gratcheva, and Bryan Gurhy. Sovereign Environmental, Social, and Governance (ESG) Investing: Chasing Elusive Sustainability, (USA: International Monetary Fund, 2024) accessed December 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper evaluates the progression of the sovereign ESG landscape since the initial comprehensive assessment of the sector in 2021 in “Demystifying Sovereign ESG” by conducting a comparative analysis of the current sovereign ESG methodologies of commercial ESG providers. The 2021 study articulated the distinct nature of the sovereign ESG segment from corporate ESG and documented fundamental shortcomings in sovereign ESG methodologies, such as the “ingrained income bias”, lack of consensus on environmental performance, and conflation of risk and sustainability objectives. While sovereign ESG methodologies have evolved since 2021, the significant correlation across providers of aggregate, S, and G scores persist. In response to market demand there has been a notable shift towards greater focus on the E pillar against growing heterogeneity on climate and environmental considerations across ESG providers. The findings underscore the disparity between perceptions and realities in implementing a sustainability strategy within the sovereign debt asset class. This necessitates a reevaluation of sovereign ESG scoring methodologies towards outcome-based metrics and urges a globally coordinated effort to establish robust sustainability measurement frameworks.

Subject: Climate finance, Corporate social responsibility, Economic sectors, Environment, Environmental sustainability, Income, National accounts, Public debt

Keywords: And Governance, Social, Climate finance, Climate financial architecture, Corporate social responsibility, Environmental and climate sustainability, Environmental sustainability, ESG, ESG landscape, ESG methodology, ESG provider, ESG score, Global, Income, Middle East, Sovereign debt, Sovereign Environmental, Sovereign ESG scores, Sustainability

Publication Details

Pages:

39
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2024/102
Stock No:

WPIEA2024102
ISBN:

9798400277054
ISSN:

1018-5941

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