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Covid-19 takes center stage in national ESG rankings

Covid-19 takes center stage in national ESG rankings

21-07-2020 | Insight
More sustainable countries were more successful in containing the deadly coronavirus, RobecoSAM’s latest national rankings reveal.
  • Max Schieler
    Max
    Schieler
    Senior Country Risk Specialist at RobecoSAM

Speed read

  • Nordic nations again top the rankings while African states are bottom
  • ESG scores are strongly correlated with national responses to Covid-19
  • Democracies tended to fight the virus better than authoritarian regimes

The July edition of the biannual Country ESG Ranking covers for the first time the unprecedented period in which the pandemic affected millions across the world. It tracks the environmental, social and governance (ESG) characteristics of 150 nations, making it the most comprehensive sustainability survey of its kind.

The Nordic nations again dominate the top of the rankings for their high levels of sustainability, with Sweden taking back the top spot from Norway, followed by Finland, Denmark and Iceland. The bottom five are perhaps not surprisingly Yemen, the Central African Republic, Chad, Sudan and Djibouti, all of which are facing internal conflicts.

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The top and bottom countries in the biannual country ESG ranking. Source: RobecoSAM.

Managing a crisis

“The outbreak and spread of the coronavirus pandemic demonstrate how swiftly a regional risk can accelerate into a global crisis with severe humanitarian, economic, financial and political consequences,” says Max Schieler, RobecoSAM’s Senior SI Country Analyst and author of the report.

“Covid-19 also comes as a reminder that in today’s closely interlinked world, a decent analysis of ESG factors is imperative for a comprehensive assessment of a country’s underlying vulnerability and resilience.”

“Countries with high ESG scores have more effectively managed to keep the virus contained, while lower ESG scores were associated with higher viral caseloads and less effective viral containment measures.”

Winners and sinners

Of the top-ranked countries with an ESG score of 8/10 or higher, eleven are European; New Zealand is the highest ranked country outside Europe. A notable absentee from the leading list is the US, whose sustainability score has been steadily eroded under President Trump, along with Japan. Singapore maintained its position as the leading emerging market country with a rank of 16th.

Two surprising risers for the period were Argentina and Saudi Arabia. Argentina has made huge strides in the adoption of renewable energy, along with rooting out corruption following extensive reforms, the report says. Saudi Arabia was marked higher for improving women’s rights, to the point that the World Bank named it a top global reformer for gender equality this year.

All the 22 bottom-ranked countries with an ESG score of 4/10 or lower are emerging markets in the southern hemisphere, with African nations firmly rooted at the bottom. The continent’s two leading economic powers, South Africa and Nigeria, rank 89th and 135th, respectively. China still remains relatively low ranked at 91st place, while India is 108th.

A big faller in the rankings was Brazil, due to continued burning of the Amazon rainforest under the climate change-denying President Bolsonaro, the report says. “Moreover, due to the government’s misguided response to Covid-19, Brazil has become a viral hotspot, and the ensuing health and economic damage will be much higher than necessary,” Schieler says.

Downward spiral for the US

The US also remains locked in a downward spiral with an ever-declining score across all three ESG dimensions – and that is before recent civil unrest is included in the data. Aside from having the world’s highest infection and death rate from the coronavirus, the country has also seen a massive decline in social conditions and the reversal of much progressive environmental legislation, the report says.

“Despite strong governance and profile scores, the US has still underperformed in terms of Covid-19 crisis management,” Schieler says. “This outcome is not surprising in light of the accumulating record of the Trump presidency. Unlike other countries, the Trump administration long downplayed the virus and therefore failed to take early action.”

“Moreover, it has also hampered efforts to contain the crisis, first in its denial and disregard for scientific evidence, and second in its dismissal of early warnings from health officials and other experts.”

Democracies do better

On the whole, democracies have done better with combatting the coronavirus than authoritarian regimes, the report asserts. “China’s harsh response to the pandemic and success in curbing the spread of the virus has given rise to the notion that authoritarian regimes have an advantage in dealing with such crises,” he says. “The response from democratic countries has varied ranging from swift, sweeping, and explicit to dismissive, delayed, and disconnected.”

The correlation between ESG scores and a country’s Covid-19 response; aside from the US, democracies mostly did better. Source: RobecoSAM.

“However, there is little evidence that an authoritarian political regime would have been better suited to managing this pandemic; in fact, the data demonstrates the opposite. Of the countries that have best managed the crisis, the majority are democracies.”

“The reluctance of many governments to rapidly respond is a reflection of respect for the individual autonomy of its citizens and a deference to regional leadership rather than ignorance or ineptness in the midst of a crisis.”

It’s not just health care

It is also important not to simply zero in on a country’s health care facilities. In general, nations with a more robust social dimension and a stronger commitment to good governance have fared better than those led by populist leaders, the data shows.

“In this crisis especially, focusing on the health system alone turns out to be insufficient for evaluating a country’s resilience and ability to cope with a health crisis of such speed and scale,” Schieler says.

“Countries with high levels of healthcare spending were among the worst hit. Furthermore, beyond healthy living standards, good governance plays an important role in a country’s capacity to protect public health, reduce economic fallout, and mitigate socio-political disturbance.”

“In all, the coronavirus is a forceful reminder for why the E, the S, and the G are equally vital when assessing a country’s investment risks and opportunities.”

Latest ESG ranking of 150 countries
Latest ESG ranking of 150 countries
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