EM in Discussion
Join us for the second season of Ninety One Live: EM in Discussion where our experts drill into emerging market investing, discuss key themes and tackle questions on investors’ minds.
Despite the importance of natural capital to a nation’s economic sustainability, until recently investors have generally paid scant attention to the connection between environmental factors and the long-term risk/return profile of debt issued by sovereign entities. In contrast, social and governance factors have been widely considered.
Current models to assess the risks associated with sovereign debt investments typically do not comprehensively integrate environmental issues, often relying on broad proxy indicators that may mask the complex nature of the environmental threats facing countries.
WWF and Investec Asset Management recently joined forces to assess the potential uses of geo-spatial research — both to measure environmental risk in sovereign debt portfolios and to facilitate engagement with governments to encourage fiscal agendas that serve people and the planet.
Spatial data can help investors conduct more robust, comprehensive and credible analysis of the systemic environmental risks facing sovereign bond issuers. And the quality of spatial data is improving rapidly, offering investors new research possibilities and enabling them to have greater confidence in their analysis.
With the world facing a looming climate and biodiversity crisis, new research techniques could transform investors’ ability to evaluate environmental risks. And for sovereign debt investors, they provide valuable opportunities to assess such risks at the country level.
By addressing environmental risks more fully and engaging constructively with issuers, sovereign debt investors can play a meaningful role in encouraging more responsible stewardship of the Earth’s natural capital.
Emerging market: These markets carry a higher risk of financial loss than more developed markets as they may have less developed legal, political, economic or other systems.