abrdn: Covid halts ESG progress for second year

Covid-19 continues to constrain ESG advancements across major economies, according to abrdn’s Research Institute’s Global Macro ESG Index.

The benchmark, which positions 135 countries based on 20 UN-aligned ESG indicators, highlighted overall lower scores in comparison to last year – the second decline in as many years.

The social aggregate score peaked in 2020 and has been declining since, coinciding with the impact of the pandemic on global economies.

Scandinavian countries continue to lead the index. Sweden ranks first, followed by Norway and Finland. The nine best performers in the index are all from northern or western Europe. Among the top 20 countries, only six are outside Europe.

Politics and governance average scores have been falling constantly since 2013 because of shifting structural factors, abrdn said, reflecting the growth of populism, authoritarianism and political repression in various countries.

Some of the largest improvements to politics and governance scores occurred in Eastern Europe, with Moldova and Romania climbing the index. Belarus is the lowest-ranked European nation, owing to significant democratic backsliding.

Unemployment is a weakness for many European countries’ ESG capabilities, abdn noted.

Jeremy Lawson, chief economist at abrdn, said: ”We are now in the ninth consecutive year of falling democracy and governance, according to the indicators used by our index.

“Since the onset of the Covid pandemic, all global ESG indicators have declined. It remains to be seen whether lifting Covid restrictions and recent regime changes in countries like the US and Brazil will make a difference.”

Globally, carbon emissions intensity continues to decline, although not by enough to meet the Paris-aligned pathway.

The US was able to improve its ESG score between 2021 and 2022, reversing years of underperformance.

China, India and Brazil posted underperformances within the index due to poor environmental, political and governance scores. China has improved its environmental and social scores, but political and governance ratings are moving in the wrong direction.

India’s environmental performance is “especially weak”, abrdn noted.

Lawson said: “One important aim of our Global Macro ESG Index is to grow the understanding of how sustainability-related factors are fundamental for a country’s growth and development. The very specific measures we have used make it easy for investors to see what can be improved and where, as well as what is changing.

“This includes the way that foreign and domestic conflicts can dramatically alter the risk profile of particular countries, as has been the case with Russia over the past year.”

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