MSCI to rate countries' exposure to environmental risks

Advisory firm MSCI has launched ratings aiming to show investors how exposed countries are to environmental risks. The MSCI ESG Sovereign Ratings are intended to complement the traditional sovereign debt analysis of a country’s creditworthiness, rating 90 countries on a seven point scale from the best, AAA, down to CCC, based on a series of environmental, social, and governance (ESG) performance metrics.

The company is aiming to provide ratings on 99 per cent of sovereign bonds issued in the marketplace, while countries that do not issue securities or whose debt is thinly traded will not be rated.

Investors can also assess countries’ performance on specific issues, such as forced labour or whether the country is a party to international conventions related to endangered species, biological diversity, or chemical and biological weapons.

“Integrating ESG into the investment process is the first principle for UN Principles for Responsible Investment (UN PRI) signatories and is increasingly being mandated and scrutinised by asset owners,” said Remy Briand, managing director and global head of index and ESG research at MSCI.

“Institutional investors require coverage of their core portfolios of equities and bonds and, hence, MSCI ESG Sovereign Ratings are a critical tool to integrate ESG research into their fixed income portfolios.”

The ratings follow a series of environmental indices that MSCI launched in 2010 to assess the performance of companies against a number of green metrics.

They are also part of a growing trend for new environmental indices and ratings, which has also seen companies such as Nasdaq, Dow Jones, S&P and the Environmental Investment Organisation launch mechanisms for tracking the environmental performance of companies or assets.

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