We believe the findings of this paper will give investors a better understanding of the full range of risks that sovereign bonds involve. It has three main objectives:
To establish whether there is a relationship between ESG factors and sovereign CDS spreads;
If so, to determine which of the three ESG factors have the strongest relationship with sovereign CDS spreads; and
To create an implied CDS spread curve that depicts the relationship between country-level ESG scores and sovereign CDS spreads.
This research should help Hermes make better-informed investment decisions and enable Beyond Ratings to improve its sovereign credit assessments.