Candriam’s 2017 ESG Country Report meets the growing demand for an investment approach which takes account of environmental or social ‘externalities’ until recently considered ‘immaterial’. Traditionally, sovereign credit analysis does not assess a country’s long-term sustainable development potential, especially in emerging markets where reliable information is harder to obtain and verify.
However, through a long-established Best in Universe ESG process, Candriam offers investors a holistic evaluation of each country’s sustainable development potential, and the non-financial risks and opportunities that impact long term value creation.
The analysis is based around a dynamic capital-based analytical tree, which scores countries in terms of how sustainably they manage their Human, Natural, Social and Economic Capital. The independent data sources that feed into the analysis provide measurable and coherent indicators on which to base the rankings and ratings.
Wim Van Hyfte, Global Head of Responsible Investment and Research: “There is a new impetus among investors to understand not just the management, structures and processes of investment, but the fiduciary stewardship of their capital as well. The shift is underpinned by evolving public policy on governance standards reflected in frameworks such as the 17 global Sustainable Development Goals and the 2015 Paris Climate Change agreement.”
Results of the report
The 2017 Candriam SRI Country report analysed and scored 123 countries. Out of these, 35 countries were Advanced Economies and 88 were Emerging economies (following the definition by the International Monetary Fund).
Following our ESG analysis, 74 countries were categorised as investible and 49 were categorised as non investible. Of the 74 investible countries, 34 were Advanced Economies and 40 were Emerging economies.
The 2017 Report produced some expected and other less anticipated results. We find that the high-ranking places are continuously held by the same group of countries, demonstrating a solid commitment to the processes that propelled them to the top.
Top five Ranking of 74 Investible Countries
Europe on top
In this year’s report, Sweden not only took top place but improved on its previous year’s score, as did the four other top-ranked countries. The scores indicate support for and protection to the fullest degree possible of Social, Human and Natural Capital, as defined by the 17 United Nations Sustainable Development Goals (SDGs). Likewise, Norway scores highly in all four Capital domains. Norway’s score is only slightly dented by its significant economic reliance on its large oil industry. But this is partly offset by the strong commitment to ESG investment by the state’s powerful sovereign wealth fund. Third-placed Switzerland performs strongly in all domains, only dipping slightly on financial transparency and accountability.
Emerging countries: improving economic scores
This year saw improving economic scores for many emerging countries –India, Poland, Mexico, Indonesia, Ivory Coast, even if India and Poland scores dipped in other domains. The growing economic clout of emerging markets is evident. Looking at the largest emerging economies, we observe a reorientation of public policies in China and in India in favour of greener growth, while status quo seems to prevail in Russia and Brazil. Both China and India are implementing ambitious renewable energy development programmes, in accordance with the bold commitments they took following the COP21.
Rest of the world: improvement in Africa
We also expect some improvement in the scores of several African countries, as a growing number start to benefit from globalization. In Ivory Coast, improving public governance should result in a higher sustainability score. In the Middle East and North Africa, Morocco and Tunisia are set to improve gradually, provided they manage to shield themselves from political instability and insecurity. However, if the Turkish government keeps moving away from Democracy, its score will be negatively affected. That factor has also penalised the overall ESG performance of many Asian countries which would usually score well in the Human Capital and Economic Capital domains.