Countries ESG impact rating: should it be integrated into credit rating?

Several approaches of countries ESG rating, and worldwide ranking, are currently available on the market, mostly based on hundreds of qualitative and quantitative data. They are very similar, and share the same limitations: they do not systematically try to measure the ESG impact of a country, and agregate too many indicators, ending with a non-sensical ratings and rankings, which, e.g. benchmark highly developed countries together with emerging ones… and dilute the score of the rated country.

And then, there is the United Nation SDG initiative, which also provide, for its high-level 17 Sustainable Development Goals (SDG), a list of hundreds indicators, updated on a yearly basis, with a heterogenous coverage depending of the country. The UN SDG evaluation ends with surprising results. For instance, the Goal #1, “No Poverty”, can be considered, according to the UN, as achieved both by France and Italy, with a respective score of 99.5% and 97.5% reached regarding extreme poverty… which is obviously not the case when, according to Eurostats, there is respectively 17.1% of the French and 28.9% of the Italian population at risk of poverty and social exclusion…

Traditional financial rating agencies, such as Fitch, S&P, etc., have tried to integrate the ESG rating in the country credit rating, with quite mitigated results… For others, the ESG rating should remain independent, or is not considered that much important, excepted for the G, the Governance part… the overall situation is unclear, and thus the research goes on. How to make sense of all that fuzz ? Indicators are indeed trustable (when of quality), but their interpretation depends on their nature, context, threshold…

According to us, a meaningful ESG rating and ranking is not only possible, but also absolutely essential and necessary. Only ESG criteria can allow us, today, to really discriminate between countries: not to recognize this point means promoting the financial indicators supremacy, and its disconnection from reality, with the deadly societal and environmental consequences in the long term, that we are now all well aware of…

With countries bonds representing representing more than half the AUM of financial investments, worldwide, the question of the integration of a reliable ESG rating into the credit rating balance must be raised, and answered—urgently.

$1,000bn: this is the forecasted size of the Green Bond market by 2021, according to HSBC. And Green Bonds are not only issued by corporations, but, increasingly, by countries, territories, or cities. It gives an idea of the importance to tackle this issue, and to provide as soon as possible a way to reliably evaluate the ESG performance and impact of Green Bonds, which means first having this reliable ESG impact rating for countries, cities, and territories. The credibility of those instruments is here at stackes.

That’s why during the last months, we had been researching, and working on ESG Impact rating methodologies, and ended with our own proprietary methodology for countries, which provide an ESG Impact rating, covering 6 ESG areas, a Transition Rating, and a SDG compliance rating, for each country. Our unique approach is to combine our sound human expertise in the field of CSR, ESG, and SRI, with a limited set of meaningful, smart indicators. IMPACTIN countries rating allow us to truly discriminate the respective performance of countries regarding ESG stakes, and to track a nation progress along its social and environmental transition.

Measuring and tracking progress, like a mantra, getting insights and adjusting the journey accordingly to the ESG goals: this path towards a more sustainable society requires meaningful, and smart ESG Impact indicators and scoring, at the country, city, corporation, or investment portfolio levels. And that’s why we provide all four of them.

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