[Corrects to reflect that ERAFP is no longer a project participant]
Some of the world’s largest investment institutions and responsible investors are backing a project by the United Nations Environment Programme Finance Initiative (UNEP FI) looking at sovereign environmental risk.
The project is called E-RISC, or Environmental Risk in Sovereign Credit analysis, and among the participants in the project are France’s Caisse des Dépôts and Germany’s KfW. Asset managers involved include SNS Asset Management, Pax World, Schroders and Calvert.
Banks are represented by Bank Sarasin, Bank of America Merrill Lynch, J.P. Morgan Chase, Citi, the Bank of New Zealand and National Australia Bank.
The project will be unveiled at a series of events starting in Sydney today (November 9), London (November 19) and New York (December 11).
It is being coordinated by the UNEP FI, the partnership between the UNEP and the global financial sector, and sustainability think tank Global Footprint Network, whose data provides the basis for the analysis.The focus is on the “credit risk” rather than the “financial performance” of government bonds, a $40trn market.
“We aim to make a direct link between ecological risk (as one in a range of possible material ESG factors) and sovereign credit risk,” the partners say. So they are focusing on the integration of financially material, ecological indicators into credit risk models. This is in contrast to the separate screening tools currently used that are based on qualitative environmental information.
“The time has come for a better understanding of the connection between environmental and natural-resource risk and sovereign credit risk,” wrote UNEP Executive Director Achim Steiner and Global Footprint Network founder Susan Burns recently.
“Only then will investors, rating agencies, and governments be able to plan over the medium to long term with the knowledge needed to ensure long-term economic growth and stability.”