Dealing with income bias in sovereign ESG scores - Sovereign ESG revisited

Investors are embracing sustainable investment strategies in passive fixed income like never before. Billions of dollars are flowing into ESG-tilted sovereign debt as asset owners try to mitigate their exposure to climate risks. But there are unintended consequences that are not discussed enough, notably related to biases present in the ESG assessment where scores tend to favor higher income countries.

FTSE Russell’s paper ‘Dealing with income bias in sovereign ESG scores’ proposes an ex-post way to deal with income bias in Sovereign ESG. Using a simple statistical framework and the Sovereign Risk Monitor methodology, the research estimates a log-linear relationship between the income level of economies and their respective E, S and G performance assessment.

To read the full research paper click here.

© 2022 London Stock Exchange Group plc (the “LSE Group”). All information is provided for information purposes only. Such information and data is provided “as is” without warranty of any kind. No member of the LSE Group make any claim, prediction, warranty or representation whatsoever, expressly or impliedly, either as to the accuracy, timeliness, completeness, merchantability of any information or of results to be obtained from the use of FTSE Russell products or the fitness or suitability of the FTSE Russell products for any particular purpose to which they might be put. Any representation of historical data accessible through FTSE Russell products is provided for information purposes only and is not a reliable indicator of future performance. No member of the LSE Group provide investment advice and nothing contained in this document or accessible through FTSE Russell products should be taken as constituting financial or investment advice or a financial promotion. Use and distribution of the LSE Group data requires a licence from an LSE Group company and/or their respective licensors.