Candriam's ESG study rates 74 countries globally as 'investable'

By Roger Aitken — The 2017 SRI Country report from Candriam, part of New York Life with assets under management of €108 billion as of this June, has categorised 74 countries globally as "investable"—34 Advanced Economies, 40 Emerging Economies—out of 123 that it analysed and scored. The report rates 49 countries as “non-investable”. 

 

The 31-page report was described by Candriam as meeting the “growing demand” for an investment approach which takes account of environmental or social ‘externalities’ until recently considered ‘immaterial’. 

 

The analysis was based around a dynamic capital-based analytical tree, which scores countries in terms of how sustainably they manage their Human, Natural, Social and Economic capital. Independent data sources that feed into the analysis provided “measurable and coherent indicators” on which to base the rankings and ratings, the firm said.

 

Traditionally, sovereign credit analysis does not assess a country’s long-term sustainable development potential, particularly in emerging markets where reliable information is harder to obtain and verify.

 

Wim Van Hyfte, Global Head of Responsible Investment and Research at Candriam, commenting said: “There is a new impetus among investors to understand not just the management, structures and processes of investment, but the fiduciary stewardship of their capital as well.” 

 

He added: “The shift is underpinned by evolving public policy on governance standards reflected in frameworks such as the 17 global Sustainable Development Goals and the 2015 Paris Climate Change agreement.”

 

Advanced Economies require a score equal to or above 50 out of 100 for them to be investable. Emerging Economies must be equal to or above 35. And, of the 35 Advanced Economies examined in analysis, only Greece, with its ongoing debt restructuring programme, is presently considered non-investable. 

 

From the Emerging Economies, which benefit from a lower inclusion threshold while their financial infrastructure matures, forty were classified in Candriam’s analysis as investable and 48 non-investable. 

 

The report for 2017 produced some expected as well as other less anticipated results, it was pointed out. High-ranking places are continuously held by the same group of countries, which Candriam said demonstrated “a solid commitment to the processes that propelled them to the top.” 

 

Sweden not only took top place but improved on its score from last year, as did the four other top-ranked countries, while Europe as a whole was on top with countries on this continent occupying the top sixteen positions - ahead of New Zealand in 17th.

 

Top Five Rankings: Investible Countries

1. Sweden

2. Norway

3. Switzerland

4. Iceland

5. Luxembourg

 

Candriam remarked that the scores indicated support for and protection to the “fullest degree possible” of Social, Human and Natural Capital, as defined by the 17 United Nations Sustainable Development Goals (SDGs). 

 

Norway, which ranked second, scored highly in all four Capital domains. The country’s was only “slightly dented” by its significant economic reliance on its large oil industry. However, this is partly offset by the strong commitment to ESG investment by the state’s powerful sovereign wealth fund. Third-placed Switzerland performed strongly in all domains, only dipping slightly on financial transparency and accountability.

 

We also expect some improvement in the scores of several African countries, as a growing number start to benefit from globalization. 

 

For example, in the Ivory Coast, improving public governance should result in a higher sustainability score, while in the Middle East and North Africa, Morocco and Tunisia are “set to improve gradually, provided they manage to shield themselves from political instability and insecurity.”

 

In relation to Turkey, which has been subject to an alert following the deterioration of its political system and its evolution towards an authoritarian regime, Candriam stated that its “score will be negatively affected” if the Turkish government keeps moving away from Democracy, Candriam stated that its score “will be negatively affected.” 

 

This factor has also penalised the overall ESG performance of many Asian countries, which would usually score well in the Human Capital and Economic Capital domains. For 2017, Turkey has been categorised as non-investable. 

 

The bottom five countries ranked in the report were Sudan (119th), Zimbabwe  (120th), Libya (121st), Iran (122nd) and Turkmenistan (123rd).

 

Candriam noted that Iran and Turkmenistan failed the Country Report Exclusion Screening in 2017, therefore scoring zero. Iran is deemed a ‘high risk and non-cooperative jurisdiction’, according to the FATF (Financial Action Task Force).

 

Turkmenistan is classified as a ‘highly oppressive regime’ with its political regime remaining one of the most repressive worldwide and there has been “virtually no improvement” in the Democracy and Human Rights situation over the last five years.

 

The full report for 2017 can be accessed via here.