A new rating model to explore how environment, social and governance factors affect sovereign debt portfolios has put New Zealand on top.
The model, created by Insight Investments said the initial findings into ESG performance had seen most countries deteriorate particularly with governance dropping in developed markets.
Insight’s senior ESG analyst Joshua Kendall said debt investors needed more information to make informed decisions into the extent ESG factors were reflected in market prices.
“We developed this model in response to client interest and expect to refine it over time as the quality and quantity of third-party research and data grows," he said.
The best performer around the world was New Zealand which boasted robust institutions and governance, stable social relations and limited exposure to environmental risks said the report.
The report found Australia’s ESG performance to be generally strong but with an average environmental score.
However, the environmental score had improved over time while the social performance had deteriorated somewhat and governance score had become materially negative.
The report placed part of Australia’s ESG woes on unstable political leadership making specific claims to the six prime ministers that have led Australia over the decade.
“This political instability has meant there is little direction on some fundamental environmental and social issues facing the country, with the influence of independent and minority-interest politicians limiting progress in political discourse,” it said.
The report did acknowledge the growth of the economy which mitigated the negative impacts of the financial crisis but the foreign-owned mines that helped the economy grow also added to unemployment and a lower environmental score.
The report did say that Australia’s governance score remains among the highest in the world, but the country was likely to underperform on ESG performance in the near term.
“As government policymaking is unlikely to be effective; social issues – such as underemployment and deteriorating social cohesion – are likely to have a negative impact; and the lack of enthusiasm for environmental regulations suggests little will happen to support an improvement in environmental risks.
“We do not currently expect economic indicators or the markets to reflect Australia’s ESG performance,” it said.
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