MSCI launches ESG sovereign ratings, to complement traditional debt analysis

New ratings cover developed, emerging and frontier markets

MSCI, the index provider, has launched environmental, social and governance (ESG) ratings to identify countries’ exposure to, and management of, ESG risk factors – and to explain how they impact long-term economic sustainability.

The ratings, which cover 90 countries and have data going back five years, aim to complement traditional sovereign debt analysis for analyzing a country’s creditworthiness, MSCI said.

The new ratings cover developed, emerging and frontier markets countries.

“Integrating ESG into the investment process is the first principle for UN Principles for Responsible Investment (UN PRI) signatories and is increasingly being mandated and scrutinized by asset owners,” said Remy Briand, MSCI’s Global Head of Index and ESG Research.

“Institutional investors require coverage of their coreportfolios of equities and bonds and, hence, MSCI ESG Sovereign Ratings are a critical tool to integrate ESG research into their fixed income portfolios.”

The ratings match to more than 14,000 bond issues and are designed to provide ratings on 99% of sovereign bonds issued.

The ratings will score and rate countries on a seven point scale from ‘AAA’ (best) to ‘CCC’ and are derived from 0-10 scores on underlying factors in three pillars: Environmental, Social, and Governance.

MSCI will also provide a set of screening factors for each country, to let users assess countries on issues such as child or forced labor and armed conflicts.

There will also be a custom weighting feature to allow investors to incorporate their own views about the impact of different ESG risk factors on country ratings and rankings.