The Nordic nations have again topped the biannual CSR survey, with Sweden retaining its top spot, while the Balkans are among the ‘mediocre’ rankings. Bucking the trend are the north’s UK, with a falling sustainability score due to Brexit, and the south’s Greece, which has been rising in the rankings following years of reforms.
There is also a north-south divide marked by the Mediterranean Sea, as the western democracies in Europe dominate the top half of the CSR, while the ‘usual suspects’ in Africa prop up the bottom. The top five spots are occupied by Sweden, Finland, Norway, Denmark and Iceland, with the bottom five containing Chad, Libya, Sudan, the Central African Republic and Yemen.
Every six months the CSR analyzes the environmental, social and governance (ESG) credentials of 150 countries – 23 in the developed world and the rest in emerging markets. Of the developed nations, 20 have ESG scores in the top categories, with Greece, Italy and Spain in the medium section. Outside of Europe, New Zealand, Australia and Canada round out the list of high performers, while the US has dropped out of the top 20 in the final six months of the Trump presidency.
As one would expect, the response to Covid-19 has again been a major factor in determining how sustainable a country is, due mainly to the strength of its health care systems, social safety nets, and overall governance.
“The ESG landscape in Europe displays a distinct north-south divide, with northern and central European economies clustered at the top of the ranking, while southern European peripheral countries, with mediocre sustainability scores, are huddled in the middle,” says Senior SI Country Analyst Max Schieler, author of the report.
“In addition, the map reveals a gap between the western and eastern parts of the continent, with eastern European countries grouped mostly in the middle ESG categories. At the bottom of the pack lie Europe’s worst performers, comprised mostly of the Balkan nations.”
Several European nations stand out in the survey, for both the right and wrong reasons. Greece has become the fastest-rising country on a one-year and five-year time horizon, thanks to a massive reform program that followed EU bailouts from 2011.Over the past five years, the country’s sustainability score has moved up by five positions to 44th.
“Greece underwent extensive reforms in the aftermath of the 2009 financial crisis and these efforts have enabled it to advance on various governance indicators, including political risk and stability,” Schieler says. “Within the social dimension, pension reforms, such as lifting the retirement age to 67, contributed significantly to score increases.”
Norway demonstrates a contradiction that is often found in sustainability – not everything is good, and you need to take the rough with the smooth. “Scores and ranks do not signify that ESG leaders are free of shortcomings; Norway is clean, but not spotless,” says Schieler.
“Norway is ranked third, but even a high-performing nation will not score perfectly across all ESG metrics and may be faced with contradictory developments in some parts of its ESG spectrum. The move to expand Arctic drilling is highly questionable and contradicts Norway’s commitments to reduce CO2 emissions.”
The UK has also proven to be a double-edged sword, with Brexit lowering its place in the rankings, while its commitment to climate change acts as a major positive. “Since the vote to leave the EU in June 2016, the UK’s sustainability profile has seen a gradual, steady decline, “ says Schieler. “Much of that deterioration occurred in governance and is related to the bitter Brexit dispute raging within the UK as well as externally with the EU.”
“But a bright spot is climate change. Since 2000, the UK has reduced its carbon emissions by 31.5 % while growing its GDP by 46.6%, and the reduction is reflected in a strong score for the environmental performance criteria. The government’s pledge to reduce greenhouse gas emissions by 68% of 1990 levels by 2030 make the UK’s plan even more ambitious than current EU plans, and will set the country on course to reach net zero emissions by 2050.”
Hong Kong has become the worst decliner over the past one-year and five-year periods among investible countries, due to the strong hand of China bearing down on the territory. The imposition of a new security law in July 2020 has reduced Hong Kong’s ranking from 18th to 25th, and also seen its credit rating cut by the major agencies.
“As the territory creeps further towards institutional integration with mainland China and deeply-entrenched socio-political frictions continue to seethe, Hong Kong’s ESG profile is unlikely to recover for the time being,” Schieler says.
Elsewhere in Asia, South Korea and Taiwan have seen strong improvements in tackling corruption and environmental problems, while Indonesia has seen ESG gains over five years but a decline over the past year due to rising internal tensions between Islamic factions and other socio-political groups. Singapore is the region’s top performer in 15th place.
The US continues to slide down the rankings, moving from above the G7 average in 2016 to markedly below it. “President Trump’s denial of climate change, promotion of unrestricted exploitation of natural resources, and the dismantling of environmental regulation impeded progress,” says Schieler.
“In the social area, Trump’s failed response to Covid-19 stands out as his biggest misstep. It is also symptomatic of the absence of any reasonable socio-economic policy efforts to address some of the most obvious social deficiencies including pronounced income disparities, increased educational inequalities and an inadequate healthcare system.”
Meanwhile, the Covid-19 pandemic continues to dominate the investing landscape. “The world is still hostage to Covid-19, as large parts of Europe, North America and Latin America are in the midst of a second wave of spiking caseloads which have a high likelihood of extending through winter,” Schieler says.
“Despite positive news about vaccine trials and the start of vaccination campaigns worldwide, Covid-19 will continue to plague the world and shape the global ESG landscape in the near future. The pandemic, and its subsequent social and economic shocks, serve as a forceful reminder of the crucial importance of E, S and G factors (acting separately as well as together) for influencing and predicting future risks.”