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 co-chair of ASCOR and head of sustainable investments at Brightwell.
Only three of eight high-income countries analyzed — Japan, Germany and France — allocate at least 0.2% of their GDP to climate finance, ASCOR said based on 2020 data. Australia, Canada, Italy, the UK and U.S. fell short of that threshold. Rich nations were supposed to provide $100 billion a year in climate finance for emerging economies starting in 2020, a milestone they’ve only just reached.
The ASCOR research also found that over half the countries analyzed have passed a framework climate law to enshrine an effective climate change response into their legal system.
Adam Matthews, co-chair of ASCOR and chief responsible investment officer for the Church of England Pension Board, said that investors need to “roll up our sleeves and engage practically with countries to focus on this ambition gap,” and then “work to close it.”
Relationships are key to our business but advisors are often slow to engage in specific activities designed to foster them.
Whichever path you go down, act now while you're still in control.
Pro-bitcoin professionals, however, say the cryptocurrency has ushered in change.
“LPL has evolved significantly over the last decade and still wants to scale up,” says one industry executive.
Survey findings from the Nationwide Retirement Institute offers pearls of planning wisdom from 60- to 65-year-olds, as well as insights into concerns.
Streamline your outreach with Aidentified's AI-driven solutions
This season’s market volatility: Positioning for rate relief, income growth and the AI rebound