Sovereign debt investors stress emerging markets gap in new climate risk metrics

The Ascor project is expected to provide a framework of reporting and measurement that recognises the different development statuses and funding needs of governments.
Sovereign debt investors stress emerging markets gap in new climate risk metrics

Metrics that assess climate change risks and opportunities for sovereigns should carefully consider the different economic and social factors of each country, including the funding gap in net zero transition between emerging markets and developed markets, sustainable investing experts said.

These remarks came as investors anticipate a tool developed by a UN-conveyed international project to gauge climate-related risks and opportunities, especially in emerging markets where data is less readily available.

The Assessing Sovereign Climate-related Opportunities and Risks project, or Ascor, is expected to identify an initial set of metrics and indicators by the fourth quarter of this year, through its engagement with sovereigns.

Investors can use the tool to assess the feasibility and progress of governments’ net zero targets and their financial strength, and quantify countries’ transition and physical-related funding needs of different issuers.

Kerry Adams-Strump,

“As an institutional investor in sovereign bonds, we evaluate our risk exposure to sovereigns, including via climate change,” said Kerry Adams-Strump, director of group ESG at Prudential, noting that the life insurer has previously used the ND-GAIN index for such a purpose.

“We are supportive of the work ASCOR is looking to perform. As a member of the Net-Zero Asset Owner Alliance, we have contributed our feedback on the project to support its goal of net zero and to meet the needs of our and other stakeholders,” Adams-Strump told AsianInvestor.

Prudential operates in many emerging markets in Asia and Africa. As a life insurer, it needs to invest in local currency assets per regulation, liability, and the business rationale of funding a better life for local residents.

Many of these markets have large exposure to climate risks, but at the same time lack research and other public information to help gauge risks and transition opportunities. More available and effective data would be rather helpful for asset owners like Prudential to engage with these markets, Prudential’s head of responsible investment Liza Jansen said in an earlier interview.


Over two-thirds of the global population live in emerging markets, but only 10% of the wealth comes from them. Meanwhile, emerging markets account for less than 10% of global sustainable finance.

“As emerging markets will likely experience the physical effects of climate change and their related costs to a disproportionately greater degree than developed markets, the ASCOR project does not want to score or rank countries,” said Claudia Gollmeier, senior investment officer and managing director for Singapore at Colchester Global Investors, which is one of the funders of the project, and members of the project advisory committee.

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“Rather, the information presented will help investors better understand the individual country policies for transitioning and adapting, as well as the progress of sovereigns toward their stated targets, putting funding costs in perspective,” she told AsianInvestor.

Claudia Gollmeier,
Colchester Global Investors

The ASCOR project commenced in June 2021, chaired by BT Pension Scheme (BTPS) and the Church of England Pensions Board, representing over $5 trillion of assets under management globally.

Its key members are the UN-convened Net-Zero Asset Owner Alliance; Ceres; the Institutional Investors Group on Climate Change (IIGCC); the Principles for Responsible Investment (PRI); and SURA Asset Management. Other participants include asset managers and ESG research institutes.

After a year of research, the project published its annual report this June and specified seven key areas to focus on, including the full range of government actions covering economy-wide and sector-specific policies in areas such as carbon pricing, energy subsidies, transport, deforestation, and land use planning.

The tool will also account for the financial strength of sovereigns, their adaptive capacity, and resilience.

After the metrics are developed, the project will apply them to 20 pilot countries, covering both developing and developed countries across different continents. Results will be published by the second quarter of 2023, followed by a public consultation period when global asset owners and managers will all be encouraged to participate.

“The ASCOR project’s team understands that sovereigns may be sensitive about having their policies assessed on a comparative basis, and their progress in implementing policies scrutinised,” said Gollmeier.

Hence, the project is not about suggesting to ministries within countries how to frame their climate change-related policies. However, it is hoped that by providing useful information to asset owners and investment managers, this will encourage all sovereigns to adhere to their pledges around climate change, and provide the opportunity for meaningful dialogues between stakeholders, she said.

Hopefully, such a tool will increase transparency and may lead to peer pressure amongst sovereigns to highlight their progress publicly, while Asia and other nations will appreciate the benefit of this tool, and make good use of it, she added.


Jonathan Ho,
Allianz Global Investors

“Historically, the industry’s abilities to assess sovereigns’ sustainability progress has lagged behind, especially compared to capabilities to measure corporate sustainability,” said Jonathan Ho, sustainability specialist at Allianz Global Investors.

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This is understandable, as corporate sustainability fits more conveniently into many mainstream and existing ESG frameworks, he noted.

“The ASCOR project will be an important step to provide further decision-useful clarity on sovereign exposure to climate risks and their climate policies,” Ho told AsianInvestor.

He stressed that context is key to any meaningful analysis of sovereigns. “The challenge is that contextualization and nuances make it difficult to generate apple-to-apple comparisons. So, the complexity is how the analysis can reconcile both contextualization and comparability.”

He takes Hong Kong as an example. The city has a target to increase the share of renewable energy in the fuel mix to 7.5-10% by 2035. In absolute terms, the target may seem low compared to targets of other jurisdictions. But given Hong Kong’s geographical constraints and renewable energy potential, such a target is already worthy of respect, Ho noted.

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