Sovereign ESG: Why understanding location risk matters

Typically, environmental, social and governance risks are considered at the corporate level. However, sovereign context for ESG is critical for two reasons.

First, countries issue financial securities and should be subject to the same level & type of ESG scrutiny analysis as all other issuers.

Second, companies are directly exposed to country level ESG because they may have their revenues, operations and supply chains located across borders and the actions of the country can therefore directly impact the company despite the company's best efforts to maintain high levels of ESG integrity.

A common denominator for most Sovereign ESG risks is the political imperative behind them - whether in the form of labor strikes, environmental regulation, or integrity risks stemming from engagement with politically exposed counterparts. Credibly evaluating the impact of specific projects on the environment, economy and social fabric in the host country and community requires a deep understanding of existing and evolving dynamics.

ESG risks are no longer just the purview of global equities - these risks are becoming directly relevant to sovereign-level investing. Understanding the issues and dynamics shaping political decision-making, societal pressures and activism helps position not just ESG risks as they manifest today but also to spot emerging risk in new geographies and sectors. Getting a credible strategic view of current and future exposure to risk provides the opportunity to engage pro-actively with critical areas of risk and enables effective mitigation.

The IHS Markit Sovereign ESG data provides forward-looking, qualitative information as quantitative data. Itincorporates 41 discrete indicators, with a particular focus on the country-level Social and Governance components of ESG. The scores represent our forecast for these risks over the coming 12 months.

For the full report and more information: Download Full Report

Posted 23 November 2020 by Alexia Ash, Director, Risk Quantification, Country Risk, S&P Global Market Intelligence

IHS Markit provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.

This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.