Prime sovereign ESG ratings | Insight Investment

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Environmental, social and governance (ESG) factors can have major implications for countries and the perceived creditworthiness of their debt.

Environmental risks – such as natural disasters, weather patterns and climate change – can all have a significant effect on a country’s economic and political outlook.
Social factors, such as demographic changes, can materially shift investors’ perceptions.
Governance factors ranging from the quality of institutional frameworks to respect for the rule of law can materially influence sovereign debt performance.

We decided to apply our years of experience in analysing ESG risks to generate sovereign sustainability measures that we believe more reliably and accurately reflect material risks and alignment with broad ESG goals.

2018

Insight introduced ESG ratings for countries¹

126

The number of countries covered

ESG risk metrics

ESG impact metrics

All above information is as at 30 June 2023 unless stated otherwise.

Prime sovereign ESG ratings: built on in-depth analysis

Our detailed paper explains how Prime sovereign ESG ratings highlight the ESG risks and opportunities across the sovereign fixed income universe.

1

Seeking to understand a country’s material ESG risks?

Identify material ESG risks for, and inform engagement with, sovereign issuers.

2

Looking for a way to tailor portfolios to ESG preferences?

Separate risk and impact models enable portfolios tailored to your preferences.

3

Need to report on the ESG risks and impact of your investments?

Report against ESG requirements and the UN Sustainable Development Goals.

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Introduction to Prime sovereign ESG ratings

In this video, Carly Thomas, ESG investment specialist, introduces the Prime sovereign ESG risk and impact ratings.

She explains how they support our analysts and portfolio managers in their investment decisions and engagements, and in building portfolios with specific ESG criteria.

Prime sovereign ESG ratings FAQ

The Prime sovereign ESG ratings aim to highlight key ESG risks – and alignment with the United Nations Sustainable Development Goals (SDGs) – for 126 countries, based on extensive global data and qualitative research by Insight's portfolio managers and analysts.

The risk ratings focus on ESG factors that have relevance to debt repayment and credit metrics, while the impact ratings focus on ESG factors related to the all-round good governance and sustainable development of a country.

Prime generates sovereign ESG risk and impact ratings using inputs from multiple publicly available data sources.

For both risk and impact models, the data inputs are transformed into a comparable scale. The sovereign risk model generates scores across 90 key metrics, which are used to produce environmental, social and governance scores, and finally an overall risk rating. Momentum scores capture a country’s direction of travel for each metric through time.

The impact model generates scores across 73 key metrics, which are mapped against the 17 United Nations SDGs to produce scores for each SDG, and finally an overall impact rating. Momentum scores also capture a country’s direction of travel for each metric through time.

The Prime sovereign ESG risk rating aims to reflect the level of ESG risk faced by a sovereign, with implications for its creditworthiness. The rating ranges from 1 (the best possible) to 5 (the worst possible).

The Prime sovereign ESG impact rating aims to measure ESG factors related to the all-round good governance and sustainable development of a country. The impact rating ranges from A (the best possible) to E (the worst possible).

The Prime sovereign ESG risk and impact measures are integrated within Insight’s sovereign debt investment process. They aim to help our sovereign analysts and portfolio managers consider material ESG risks in their investment decisions and to identify potential issues for constructive dialogue with sovereign debt issuers.

Our clients may also benefit from Prime's analysis in reporting on the ESG risk exposures within their portfolios.

In this, our third-generation sovereign ESG framework, we have created two separate models: one that focuses on the risk of ESG factors to a sovereign’s creditworthiness, and an impact model that focuses on a country’s sustainable development performance.

By splitting our sovereign ESG framework into two models we can better tailor portfolios to client preferences, allowing for a greater focus on credit risk or impact and sustainability if required.

Isobel Lee, Head of global government portfolios

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Prime sovereign ESG ratings FAQ

What are the Prime sovereign ESG ratings?

How are Prime sovereign ESG risk and impact ratings produced?

What does a high or low Prime sovereign ESG rating indicate?

What entities do the Prime sovereign ESG ratings cover?

How do Insight’s portfolio managers use the Prime sovereign ESG ratings?

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