Search this website. You can use fund codes to locate specific funds

Pricing ESG risk in sovereign credit: an emerging divergence

In 2019, we partnered with research house Beyond Ratings to demonstrate a robust relationship between environmental, social and governance (ESG) scores and sovereign credit-default swap (CDS) spreads. In the second instalment of this two-part paper, we consider whether the results differ for developed and emerging markets.

Our study from last year uncovered an inverse relationship between country-level ESG scores and government CDS spreads: the countries with lower ESG scores have the widest CDS spreads, while those with the highest scores have the tightest spreads.

But do our findings hold up if we look at developed and emerging markets separately? In order to find out, we adopted the analytical techniques from our previous study and split the dataset into developed and emerging markets.

Some of the key questions our study asks include:

  • Is the relationship between ESG scores and CDS spreads more significant for developed or emerging markets?
  • Do any of the ‘E’, ‘S’ or ‘G’ sub-risks have a stronger relationship with CDS spreads?
  • How can country-level ESG factors affect credit risk in emerging markets?

To delve into our findings and to understand our underlying methodologies, read the full report.

More Insights

Impact Quarterly Report, Q3 2021
In the latest Impact Quarterly Report, we delve into the theme of Financial Inclusion, as a theme linked to 13 of the 17 UN Sustainable Development Goals (SDGs).
An asset class at a crossroads: reshaping credit through ESG
We outline our credit team’s ESG and engagement integration philosophy, and how the team is working to authentically integrate ESG into every step of its investment process.
Climate crisis in focus in EOS’s Q3 Public Engagement Report
In this issue we take a more in-depth look at the climate crisis ahead of COP26.
Beyond Headline Multiples: US Equities webcast, November 2021
Join Mark Sherlock, Henry Biddle and Steve Chiavarone for the latest webcast on Federated Hermes US SMID.
Fiorino: fighting disorder: how finance is working against climate change
With the Glasgow UN Climate Conference (COP 26) talks in the headlines, Fiorino examines how the European financial sector is already rising to the biggest challenge of the times – and why the industry must apply energy to maintain order...
Inflation and supply chain disruption: Impact on corporate sectors
Inflation and supply chain disruptions, along with the moderating pace of the post-pandemic earnings recovery, have made us more cautious on corporate fundamentals as we enter Q3 reporting season