EM sovereign debt: on track for net zero?

A year on from the launch of our Net Zero Sovereign Index, our EM Debt team explains how it now measures alignment with Paris climate goals and what that means for investors.

14 Nov 2022

8 minutes

Peter Eerdmans
Roger Mark
A year on from the launch of our Net Zero Sovereign Index, our EM Debt team explains how it now measures alignment with Paris climate goals and what that means for investors.

The fast view

  • Since 2021 (read the initial launch paper here), our Net Zero Sovereign Index has provided useful insights into the relative performance on climate-related matters of 116 countries across developed and emerging markets.
  • We have now enhanced the index to show how each country is performing in an absolute sense from a ‘Paris alignment’ perspective. This paves the way for developing transparent ‘Paris-aligned’ portfolios.
  • We think that portfolios targeting Paris alignment can make a more meaningful contribution to global transition goals. In contrast, targeting ‘net-zero’ portfolios risks exacerbating efforts by (typically) starving EM of the vital capital they need to transform.
  • For each metric in the index, we score countries for Paris alignment, with scores falling into one of five categories, ranging from ‘very high’ alignment to ‘very low’. A country’s alignment score across the various metrics is then aggregated.
  • Currently, no country manages to score in the top ‘very high’ alignment category. This should not be too surprising given the still formative nature of countries’ net zero commitments and of the energy transition.
  • From a trend perspective (2022 vs 2021), there are some positive – albeit largely expected – dynamics, with 16 countries moving up one category, and only three countries dropping down a category.
  • We believe the Net Zero Sovereign Index now provides asset owners and investment managers with greater capacity to support a fair transition for emerging markets and will help sovereign-debt investors hold governments to account for their climate policies and actions.

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Peter Eerdmans
Portfolio Manager
Peter is Head Fixed Income and Co-Head of Emerging Market Sovereign & FX at Ninety One....
Roger Mark
Analyst

Roger is an analyst in the Fixed Income team at Ninety One. He is responsible for...

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