Sovereign bond issuers lack climate ambition, says $5B investor group

Sovereign bond issuers lack climate ambition, says $5B investor group
Alliance says US and Canada among nations falling short on climate finance.
DEC 07, 2023

An alliance of bond investors representing $5 trillion in assets says its first study of sovereign issuers shows most of their climate pledges lack the necessary ambition.

The group, which calls itself the Assessing Sovereign Climate-related Opportunities and Risk project, says that just four of the 25 countries it analyzed have emissions reduction targets that are aligned with a 1.5C pathway, namely Bangladesh, Barbados, Kenya and Morocco. The UK and the U.S. are among sovereign issuers that aren’t aligned with limiting global warming to 1.5C, ASCOR said. The figures reflect a so-called fair share assessment, which takes into account a country’s historical emissions, income and population. 

“Evaluating how countries manage climate mitigation and adaptation risks” will help investors in their “analysis of their fiscal sustainability,” said Carmen Nuzzo, executive director at the Transition Pathway Initiative Centre, the academic partner of the project. “It is about fair pricing and impact, not politics.”

Sustainable finance is less established in sovereign debt markets than in corporate securities, where fund managers apply an array of strategies under the rubric of environmental, social and governance investing. That’s because metrics and models designed for corporations don’t easily translate to governments, while ESG scores for countries have been criticized for being too correlated to a nation’s wealth. 

ASCOR, whose members include pension funds and other institutional investors, says its data tool identifies the most critical environmental data points to be used in sovereign debt financial analysis. It aims to put “climate change at the heart of sovereign investment decision-making,” according to Victoria Barron, a co-chair of ASCOR and head of sustainable investments at Brightwell. 

Only three of eight high-income countries analyzed — Japan, Germany and France — allocate at least 0.2% of their GDP to climate finance, ASCOR said based on 2020 data. Australia, Canada, Italy, the UK and U.S. fell short of that threshold. Rich nations were supposed to provide $100 billion a year in climate finance for emerging economies starting in 2020, a milestone they’ve only just reached.

The ASCOR research also found that over half the countries analyzed have passed a framework climate law to enshrine an effective climate change response into their legal system.

Adam Matthews, co-chair of ASCOR and chief responsible investment officer for the Church of England Pension Board, said that investors need to “roll up our sleeves and engage practically with countries to focus on this ambition gap,” and then “work to close it.” 

Latest News

Fintech bytes: Envestnet reaffirms $1B RIA commitment with Tamarac tech investment
Fintech bytes: Envestnet reaffirms $1B RIA commitment with Tamarac tech investment

Also, Orion has added BlackRock, Fidelity, and Vanguard to its custom portfolios suite, and RedBlack has set up a new headquarters after crossing a trillion-dollar milestone.

RIA moves: Maridea acquires multigenerational practice in Pennsylvania debut
RIA moves: Maridea acquires multigenerational practice in Pennsylvania debut

Also, New York-based Legacy Edge Advisors names its first-ever CEO, while Novare Capital Management hires a Vanguard veteran with a multigenerational planning focus.

Private equity eyes 401(k) plans, but fees remain a hurdle
Private equity eyes 401(k) plans, but fees remain a hurdle

Asset managers are racing to bring private market products to retirement plans, but cost and liquidity concerns linger.

IRS floats proposal ending tax breaks for schools that weigh race
IRS floats proposal ending tax breaks for schools that weigh race

Treasury's latest tax-exemption crackdown on private schools lands in the wake of a separate push to restrict refundable credits for some immigrant filers.

Trust over tech:  The hidden signal of stock success in the AI era
Trust over tech: The hidden signal of stock success in the AI era

Workforce trust measures predicted which companies came out ahead during COVID-19. The same dynamic may now be playing out across the AI transition — and the data suggests the spread could be just as wide.

SPONSORED Direct indexing webinar targets tax-loss harvesting amid market swings

Northern Trust’s Ken Lassner shows advisors how to convert volatility into after-tax portfolio gains

SPONSORED Who builds the income when the pension disappears?

Dan Biagini of American Equity says the steady decline of pensions, longer lifespans and a reset in interest rates are rewriting how advisors build retirement income