Fixed-income investors integrating ESG into investment decisions can assess how ESG risks might affect countries' credit factors, through country risk ratings released Thursday by Sustainalytics, an ESG research firm.
The Country Risk Ratings cover 170 countries and are based on more than 40 indicators, including 30 from the World Bank, the United Nations and other globally recognized sources, plus 10 proprietary event indicators, such as natural disasters.
The ratings assess ESG performance, trends and current events, and measure how each country's long-term prosperity and economic development might be affected by ESG risk and its ability to manage its assets sustainably. Assets are categorized as natural and produced capital, human capital and institutional capital.
Natural and produced capital includes infrastructure, energy independence and natural resources; human capital includes education, life expectancy, and access to water and sanitation; and institutional capital includes political liberties, corruption and rule of law.
Vikram Puppala, director of product strategy and development for sustainability, said in an interview that the ratings, which will be updated quarterly, could be useful in supplementing other economic indicators such as GDP that take longer to report.
Unlike financial wealth measurements such as GDP, "this is wealth from a more holistic measure of a country's capital," Mr. Puppala said. He said clients have been using the new risk ratings for more than a month and are finding them helpful in getting a broader perspective on countries' ESG and economic risks.