Sweden has again topped the charts in RobecoSAM’s biannual survey of a nation’s sustainability credentials.
The country leads the autumn edition of the Country Sustainability Ranking (CSR), followed by its Scandinavian neighbor Denmark and then Switzerland, with no change in the composition of the top 10 nations.
Bottom of the rankings are Pakistan, Nigeria, Venezuela and Ukraine. Of the emerging market giants, China is fifth from bottom due to various deficiencies in its environmental, social and governance (ESG) profile, while India is 10th from bottom, though still ranking above Turkey.
“This year’s Autumn Update of the Country Sustainability Ranking renders no surprises,” says Max Schieler, Senior Country Analyst at RobecoSAM. “The Scandinavian countries and Switzerland have consolidated their leading positions, while the emerging giants India and China remain among the weakest ESG performers. They are also ranked at the bottom of our investment universe.”
Brazil has fallen in the rankings following the election of populist President Jair Bolsonaro on a right-wing agenda, while the murder of US-based journalist Jamal Khashoggi has come as a grim reminder of Saudi Arabia’s democracy deficit and poor human rights record.
“Populism is still very much alive, as recent election results have shown, and will likely impact various countries’ ESG profiles going forward,” Schieler says. “Whereas public reaction to events involving Saudi Arabia has been one of shock and disbelief, the kingdom’s democratic deficits have been consistently reflected in our governance indicators and analysis in recent years.”
The biggest faller was the usually safe haven of Luxembourg, which is facing an unsustainable pensions and social security bill for its aging population. Germany’s political instability after long-time Chancellor Angela Merkel announced she would quit also cost it ranking points. As Luxembourg’s 0.2 drop was higher than Germany’s 0.11, the two nations swapped places to 12th and 13th, respectively. Norway also fell, dropping to 0.09 points to finish fifth.
“In all three cases, the setback is entirely due to a poorer performance in some governance areas and political risk (in Germany), as well as higher net present value estimates for pension and healthcare spending, which is undermining the sustainability of the respective social security systems,” Schieler says.
The UK and US were able to maintain their ESG scores, despite contentious issues relating to Brexit and an erratic President Trump. “Both show a deterioration in social unrest, political risk and political stability indicators, reflecting greater uncertainty, more pronounced risks, increased polarization and a widening social divide,” Schieler says.
More generally, the standards of governance have dropped around the world. “A pronounced deterioration in aging scores (South Korea and Poland) characterizes losing countries, while increased corruption (Malaysia and Russia), the weakened rule of law (Malaysia and Poland) and declines in regulatory quality (Turkey) contributed to deterioration in worldwide governance indicators,” Schieler says.
RobecoSAM uses a range of ESG metrics to establish how sustainable a country is on a long-term basis. It collects data from 65 countries – 22 developed and 43 emerging – twice a year. The resulting scores offer insights into the investment risks and opportunities associated with each country, and provide investors with a better frame of reference for making comparisons between countries and regions from a risk-return perspective.
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