New sovereign bond framework will assess climate risk

A group of asset owners and managers say a newly launched framework will deal with the “analysis dearth” regarding data about sovereign bond issuers and their emissions, climate policies and opportunities to mitigate climate risks.

The Assessing Sovereign Climate-Related Opportunities and Risks (Ascor) project, backed by a coalistion of asset managers and asset owners with $5 trillion in assets under management, will seek to drive the financing of a ‘just transition’, particularly in nations where funding is scant.

The final framework will result in an independent and publicly available assessment tool intended to help investors with net-zero goals and to engage with issuers.

While the first two pillars – “emissions pathways and climate policies” – inform investors about the effectiveness and performance of sovereigns in managing climate change, the third pillar – “opportunities to finance the transition” – sets out the landscape of climate risks and opportunities that countries face.

The framework has been developed in collaboration with the Transition Pathway Initiative, the Global Climate Transition Centre based at the London School of Economics and Political Science, and Chronos Sustainability.

Victoria Barron, Ascor co-chair and head of sustainable investment at BT Pension Scheme Management, said: “There is an analysis dearth where investors do not have information on the climate risks and opportunities of sovereign issuers, and sovereign issuers are not clear on what information investors are seeking. This is leading to unfair extrapolations or missed investment opportunities.”

By translating the complexity of climate risk assessment into clear metrics tied to long-term economic drivers, Ascor is putting climate change at the “heart of sovereign investment decision-making”, she added.

The collective has launched a consultation report to garner insights from stakeholders ahead of a 25-country-wide pilot.

Carmen Nuzzo, head of fixed income, Principles for Responsible Investment, and co-chair of Ascor’s climate policy and funding Working Groups, said the tool could become an “industry reference framework for sovereign debt investors and issuers”.

The free online Ascor tool will be published by the end of 2023 and updated annually thereafter.

© 2023 funds europe

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