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

Credit investors: delivering into the imperatives of Paris
Weekly Credit Insight
The amount of negative-yielding debt is nearing an all-time high.
Green bonds alone won’t get us to Paris: we need firm-level action
While green-bond-financed projects are necessary in solving the climate crisis, they are not sufficient.
Sharpe Thinking
As the days get shorter and a winter season dominated by the coronavirus looms, there is a distinct chill in the air.
Launching new carbon-disclosure standards for UK finance
We played a key role in launching the UK coalition of the Partnership for Carbon Accounting Financials this week.
Weekly credit insight: volatility starts to normalise
Volatility in investment-grade credit has returned to the average level seen over the last decade