Jointly developed by RobecoSAM and Robeco, the Country Sustainability Ranking is a comprehensive framework for analyzing countries’ performance on a wide range of ESG metrics.
By focusing on ESG factors such as aging, corruption, institutions, and environmental risks – which are long-term in nature – our country sustainability assessment offers a comprehensive view into a country’s strengths and weaknesses that are not typically covered by a traditional sovereign risk rating. Used in combination with standard sovereign bond ratings, RobecoSAM’s country ESG rankings can be a powerful tool to enhance risk analysis for government bonds, enabling investors to make better informed investment decisions.
The Country Sustainability Ranking analyzes 150 countries spanning emerging and developed economies and is updated semi-annually. Insights from assessments and rankings are incorporated into the investment process for Robeco’s Government Bond Strategies and are also used to determine country weights in the S&P ESG Sovereign Bond Index Family. More information can be found below the results.
Last updated: April, 2020
A country’s ESG score is based on its performance across 40 underlying indicators measuring environmental, social, and governance factors. Indicator data is quantified, weighted, and systematically aggregated into 15 broader criteria that eventually result in scores for environmental (E), social (S) and governance (G) dimensions. Final country scores are calculated by summing scores across the three ESG dimensions based on the following weights (20% to environmental factors, 30% social, and 50% to governance factors). Data sets and research are derived from a broad range of reputable institutions and sources. Each country score ranges from 1 to 10 and should be interpreted as a performance grade—the highest grade being 10 and the lowest 1.
The purpose of the score is to compare countries on the basis of ESG indicators that we consider to be material and relevant for investors.
The descriptions below offer a sample of the types of ESG criteria used within country assessments and demonstrate why they are relevant for evaluating a country’s economic performance and, in turn, for informing investment decisions.
All countries are exposed to and impacted by climate change, weather-related loss events, and natural disasters (e.g. cyclones, typhoons, earthquakes, floods, forest fires, and heat waves) to varying degrees. Environmental risk criteria provide an assessment of the impact of such events both in terms of fatalities and economic losses. Environmental events can lead to severe disruptions in the availability and production of goods and services within a country that can result in adverse macroeconomic effects such as inflation, slowed growth, export losses, and/or debt servicing problems.
A high-quality and diverse natural environment enhances human well-being and health. Rich natural resources can be exploited to support economic development, generate fiscal and export revenues, and thus support economic growth. On the other hand, over-exploitation can lead to environmental damage, shrinking biodiversity, and the reduction of natural habitats—all of which threaten environmental ecosystems, reduce natural resources, and impede sustainable economic development in the long-term.
A rapidly aging population poses significant challenges for an economy. In addition to labor shortages, a shrinking workforce could lead to a reduction of capital investments and limit a country's economic growth potential. Moreover, it is likely to result in lower income tax revenues, lead to increased government spending on health care and pensions, enlarge public debt levels, and intensify fiscal burdens.
Research shows that the risk of violent protests, riots, and social unrest is higher in countries that are lagging in terms of economic development. Under-development is more likely to cause social unrest which tends to decline with ongoing economic growth and growing levels of happiness and well-being. Social conflict, in turn, can impose considerable economic and social costs, weaken state institutions, lead to greater uncertainty, cause political instability, and impair economic growth.
Corruption can assume many different forms, but regardless of shape, corruption lower trust in government, its institutions, and the rule of law with disastrous effect. Undermining a country’s institutional framework can upset the political environment, stymie the legislative process, aggravate divisions and prevent societal unity. Moreover, corruption can negatively impact the business climate leading to higher costs and great inefficiency as public spending is tilted toward projects that have been influenced by bribes and unfair procurement practices. Higher costs and reduced efficiency translate to both lower quality public goods and services and reduced investment and tax revenues.
Research shows that institutions matter a great deal in determining a country's economic development and growth. Protection of property rights, effective law enforcement, efficient public administration, promotion of civil liberties and a wide range of similar norms are strongly correlated to superior economic performance. Effectively managed and robust institutions reduce risk and uncertainty (reducing information asymmetries and enforcing contracts) and lower transaction costs in an economy. This, in turn, spurs investment, investment returns, and sources of state revenues and incomes.
Political risk is broad and multi-faceted and includes features such as government politics, the political and electoral system, and the existence of checks and balances between political units. There is a strong relationship between a country’s political environment and economic development, as businesses, financial markets and the economy as a whole are impacted by a variety of political decisions, such as taxes, government spending, regulations, fiscal and monetary policy, exchange rate and investment controls, labor laws, trade policies and tariffs, and environmental laws.
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