Country Sustainability Ranking Update – May 2017 Sweden re-takes the lead Scandinavian countries still in front Political risks still elevated India resumes its upward trend Emerging giants facing demographic headwinds This semi-annual report provides a succinct summary and analysis of the Environmental, Social, and Governance (ESG) profiles of 65 countries around the globe. It builds on the results of RobecoSAM’s proprietary Country Sustainability Ranking (CSR) tool which collects and analyzes ESG data from 22 developed and 43 emerging market economies 1 via a structured and comprehensive framework to calculate an overall country score. The resulting scores offer insights into the investment risks and opportunities associated with each country and provide investors with a better frame of reference for making comparisons among countries and regions from a risk-return perspective. The summary outlined here complements findings gained from the more traditional country risk assessment and is particularly focused on integrating long-term perspectives 2 . For a more detailed outline of the methodology used, please refer to our brochure “Measuring Country Intangibles” 3 . The global risk landscape remains heavily shaped by ESG factors and their multifold interlinkages with macroeconomic and fiscal developments. Figure 1 is a global risk matrix based on a risk perception survey of around 750 experts among the World Economic Forum’s multi-stakeholder communities. It maps 30 global risks over a 10-year time horizon in terms of their perceived likelihood of occurring and their potential global impact. The assessment of these risks – categorized as economic, environmental, societal/social, technological, and geopolitical (which largely corresponds to governance in RobecoSAM’s terminology)—confirms that in 2017, environmental, societal/social, and governance (ESG) risks continued to dominate (shape) the landscape of risks both in terms of impact as well as likelihood on a global scale. Nine of the top ten risks belong to these categories in stark comparison to just a few years ago, when economic risks were more prevalent, especially at the height of the 2008-10 financial crisis. 1 Bulgaria, Pakistan and Vietnam were newly added to the coverage 2 There has been no change in the set of indicators, data sources or ranking approach in this update, except for the revised index methodology of the Energy Trilemma Index (ETI) and the partial replacement/complement of the World Bank’s GINI coefficient data with data from the OECD. Both, the ETI and the GINI coefficient are input factors for the environmental and social scores, respectively. (The ETI, developed by the World Energy Council and Oliver Wyman, ranks 125 countries in view of their ability to provide a secure, affordable, and environmentally sustainable energy system. The revised methodology includes more indicators, measures for the quality of supply and a review of the resilience of a country’s energy system.) Comparisons with past scores are always based on the scores that were originally published in previous reports. 3 “Measuring Country Intangibles”, June 2015, available on the RobecoSAM website: http://www.robecosam.com/en/sustainability-insights/about- sustainability/country-sustainability-ranking.jsp
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Country Sustainability Ranking Update – May 2017
Sweden re-takes the lead
Scandinavian countries still in front
Political risks still elevated
India resumes its upward trend
Emerging giants facing demographic headwinds
This semi-annual report provides a succinct summary and analysis of the Environmental, Social, and Governance (ESG) profiles
of 65 countries around the globe. It builds on the results of RobecoSAM’s proprietary Country Sustainability Ranking (CSR) tool
which collects and analyzes ESG data from 22 developed and 43 emerging market economies1 via a structured and
comprehensive framework to calculate an overall country score. The resulting scores offer insights into the investment risks and
opportunities associated with each country and provide investors with a better frame of reference for making comparisons
among countries and regions from a risk-return perspective. The summary outlined here complements findings gained from
the more traditional country risk assessment and is particularly focused on integrating long-term perspectives2. For a more
detailed outline of the methodology used, please refer to our brochure “Measuring Country Intangibles” 3.
The global risk landscape remains heavily shaped by ESG factors and their multifold interlinkages with macroeconomic and fiscal
developments. Figure 1 is a global risk matrix based on a risk perception survey of around 750 experts among the World
Economic Forum’s multi-stakeholder communities. It maps 30 global risks over a 10-year time horizon in terms of their perceived
likelihood of occurring and their potential global impact. The assessment of these risks – categorized as economic,
environmental, societal/social, technological, and geopolitical (which largely corresponds to governance in RobecoSAM’s
terminology)—confirms that in 2017, environmental, societal/social, and governance (ESG) risks continued to dominate
(shape) the landscape of risks both in terms of impact as well as likelihood on a global scale. Nine of the top ten risks belong to
these categories in stark comparison to just a few years ago, when economic risks were more prevalent, especially at the height
of the 2008-10 financial crisis.
1 Bulgaria, Pakistan and Vietnam were newly added to the coverage 2 There has been no change in the set of indicators, data sources or ranking approach in this update, except for the revised index methodology of the Energy Trilemma Index (ETI) and the partial replacement/complement of the World Bank’s GINI coefficient data with data from the OECD. Both, the ETI and the GINI coefficient are input factors for the environmental and social scores, respectively. (The ETI, developed by the World Energy Council and Oliver Wyman, ranks 125 countries in view of their ability to provide a secure, affordable, and environmentally sustainable energy system. The revised methodology includes more indicators, measures for the quality of supply and a review of the resilience of a country’s energy system.) Comparisons with past scores are always based on the scores that were originally published in previous reports. 3 “Measuring Country Intangibles”, June 2015, available on the RobecoSAM website: http://www.robecosam.com/en/sustainability-insights/about-sustainability/country-sustainability-ranking.jsp
An increasing number of emerging market countries share a common problem with more mature economies: a rapidly
worsening demographic transition which will adversely affect their economic growth potential while posing considerable fiscal
challenges. The three emerging economic heavyweights – Brazil, China, and India - too, are not immune from this
development, but they are affected in widely varying degrees. This trend is most acute in China, which shows the sharpest
increase in the old-age dependency ratio, i.e. the number of elderly people (aged 65+), compared to the number of people of
working age (15-64 years old), as illustrated in Figure 11. China has already seen the share of its working-age population
shrink by 1 percentage point to 73.2% from 2010 to 2015 and will further decline to 58.9% by 2050, according to UN
projections. A similar, albeit slightly less pronounced, trend is projected for Brazil. In contrast, the percentage of working age
persons in India is expected to slightly expand from 65.6% in 2015 to 67.1% in 2050.
The ageing population will also pose challenges for increasing old age pensions and health-related expenditures which will
require further investments in social security systems and add additional strain on public finances. In this regard, Brazil
appears to be the worst off. Current IMF estimates put the Net Present Value (NPV) of Pension Spending Change 2015-50 at
135.9% of GDP – significantly up from last year’s estimate of 98.9%. The corresponding NPV of Brazil’s Health Care Spending
Change amounts to 61.8% of GDP. These figures are much higher than the equivalent estimates for China (83.7%/47.1%) and,
6 RobecoSAM: “Country ESG trends in Turkey: a country going astray”, December 2016
*=Average rating of Fitch, Moody's & S&P
Country Sustainability Ranking Update – May 2017 • RobecoSAM • 13
in particular, India (-5.5%/14.3%)7, which is in the best fiscal position. Already in 2015, pension and health spending in Brazil
claimed half of total public spending (i.e. 16% of GDP) and is projected to increase to 21% of GDP by as early as 20258. This
suggests that the aging problem will rapidly become a major ESG driver for Brazil and that reforms are becoming increasingly
urgent, not least given the country’s already notoriously deficient fiscal accounts.
Figure 11: Emerging giants facing different demographic headwinds
Source: RobecoSAM
7 IMF: “Fiscal Monitors”, April 2017 and April 2016 8 IMF: “Fiscal Challenges of Population Aging in Brazil”, IMF Working Paper – WP/17/99, March 2017
Country Sustainability Ranking Update – May 2017 • RobecoSAM • 14
“A proper country sustainability assessment provides additional information and valuable insights into a country’s underlying risk drivers that we believe are critical to making balanced investment decisions”.
Max Schieler
Senior Country Risk Specialist
Country Sustainability Ranking Update – May 2017 • RobecoSAM • 15
Appendix
Data sources
ta sources
Environmental Status Yale; Environmental Performance Index
http://epi.yale.edu/
Energy World Energy Council/Oliver Wyman; Energy Trilemma Index
https://trilemma.worldenergy.org/
United Nations; Energy Statistics
http://unstats.un.org/unsd/default.htm
Environmental Risk Bündnis Entwicklung Hilft; World Risk Report
http://www.entwicklung-hilft.de/home.html
Germanwatch; Global Climate Risk Index
https://germanwatch.org/en/cri
Social Indicators Social Progress Imperative; Social Progress Index
http://www.socialprogressimperative.org/
UNDP; Gender Inequality Index
http://hdr.undp.org/en/data
UNICEF; Child Labour
https://data.unicef.org/
World Bank; World Development Indicators – GINI Index
Country Sustainability Ranking Update – May 2017 • RobecoSAM • 16
About RobecoSAM Founded in 1995, RobecoSAM is an investment specialist focused exclusively on Sustainability Investing. It offers asset management, indices, impact analysis and investing, sustainability assessments, and benchmarking services. The company’s asset management capabilities cater to institutional asset owners and financial intermediaries and cover a range of ESG-integrated investments, featuring a strong track record in resource efficiency-themed strategies. Together with S&P Dow Jones Indices, RobecoSAM publishes the globally recognized Dow Jones Sustainability Indices (DJSI) as well as the S&P ESG Index series, the first index family to treat ESG as a standalone performance factor using the RobecoSAM Smart ESG methodology. Based on its Corporate Sustainability Assessment (CSA), an annual ESG analysis of over 3,900 listed companies, RobecoSAM has compiled one of the world’s most comprehensive databases of financially material sustainability information. The CSA data is also included in USD 86.5 billion of assets under management by the subsidiaries of the Robeco Group.
RobecoSAM is a sister company of Robeco, the Dutch investment management firm founded in 1929. Both entities are subsidiaries of the Robeco Group, whose shareholder is ORIX Corporation. As a reflection of its own commitment to advancing sustainable investment practices, RobecoSAM is a signatory of the PRI and UN Global Compact, a member of Eurosif, Swiss Sustainable Finance, Carbon Disclosure Project (CDP), Ceres and Portfolio Decarbonization Coalition (PDC). As of December 31, 2016, RobecoSAM had client assets under management, advice and/or license of approximately USD 16.1 billion.
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