Home > ESG Impact Rating for Sovereigns and the example of Russia

ESG Impact Rating for Sovereigns and the example of Russia

Jul 4, 2022

A state first needs to ensure a strong institutional framework in place in order to guarantee its adequate preparation to deal with the challenges of sustainable development and, secondly, its preparedness and performance with respect to how it governs its people and the environment need to be evaluated to reach a robust sustainability assessment.
The conceptual framework of the Country Rating is based on a screening module and an ESG module with respective topics and criteria.

The screening module covers topics related to the institutional framework of a state. They include indicators for core responsibilities and minimum requirements for states such as human rights, governance, democracy, governance and rule of law, peace keeping, etc. as well as the signatory status of major international conventions concerning labor, human rights and the environment. These are mainly long-lasting elements which are only gradually affected by government changes or political processes. Non-compliance with screening indicators leads to the status “non-compliant” in the Inrate Rating for Sovereigns – because it is believed that the countries sustainable development is hampered in the long term by non-compliance of the criteria.

The ESG module considers a wide range of criteria, which together provide a comprehensive view of a state’s performance with respect to the environment (25% weight), the society (25% weight), and its governance practices (50% weight). The assessment of ESG module is based on an encompassing set of secondary data from publicly available, official and trustworthy sources such as UN institutions. Data are gathered for almost 200 countries and final grades are calculated for around 140 countries by applying the same methodology for all countries (due to lack of data, grades cannot be assessed for all countries).

The final ESG grade is expressed on a scale from A+ (very sustainable) to D- (not sustainable at all). By using the same scale as for the ESG impact rating of corporates, Inrate allows its customers to use the rating for the analysis of mixed portfolios.

Inrate’s ESG Impact Rating for Russia
The Russian Federation achieves only a grade of C- (scale A+ to D-) because of a high weighting of governance criteria and has always been flagged as non-compliant due to breaches of screening criteria reflected e.g. in the regime type and the corruption perception index.
Among other ESG-indicators, Inrate captures indicators that have long pointed to weaknesses in the Russian governance, such as freedom status (political rights, civil liberties), press freedom, use of force against independent states or civilians, and cooperation in international conventions including conventions against controversial weapons as well as participation to the Rome Statute of the International Criminal Court.

Financial market infrastructure provider SIX announced today the launch of a new climate data offering, aimed at supporting investors in reporting and monitoring of climate factors, and in climate-related investment and risk decision making.

The climate data sets, from various data providers in a range of industries, will provide clients with modelled and reported emissions data, covering over 33,000 companies globally, and bringing together multiple data sets on regulatory, historical and forward-looking climate impacts from providers including MSCI and Inrate. SIX also announced that it has recently entered into an agreement with environmental disclosure platform CDP to offer access to its global Greenhouse Gas (GHG) Emissions Dataset across various industries.

According to SIX, the new data sets come as investors increasingly require ESG and climate data to monitor investment decisions and to meet growing regulatory disclosure requirements, including the EU’s SFDR and the U.S.’ upcoming SEC Climate Disclosure Rules.

Martina Macpherson, Head ESG Product Strategy and Management, Financial Information, SIX, said:

“Understanding, measuring and managing climate risk and opportunities, as well as the impact that these can have on investment decisions, is a critical area of focus for market participants and policy makers alike. As more climate risk monitoring and reporting is required globally, the cost of compliance is increasing – both in operations and in terms of specialist ESG resources. SIX works with established providers of basic and specific ESG and climate data in the market.”