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Sovereign rating methodologies, ESG and climate change risk: an overview

Author

Listed:
  • Denitsa Angelova

    (Department of Economics, Ca' Foscari University of Venice; Euro-Mediterranean Center on Climate Change (CMCC))

  • Francesco Bosello

    (Department of Economics, Ca' Foscari University of Venice; Euro-Mediterranean Center on Climate Change (CMCC))

  • Andrea Bigano

    (Euro-Mediterranean Center on Climate Change (CMCC); RFF-CMCC European Institute on Economics and the Environment (EIEE))

  • Silvio Giove

    (Department of Economics, Ca' Foscari University of Venice)

Abstract

We review the sovereign credit rating methodologies of three credit rating agencies (Moody's, S&P and Fitch) and analyze how they currently accommodate climate change risk and ESG considerations. We elaborate on the differences between the three rating methodologies and critically evaluate their suitability and limitations. We propose lines of improvement with respect to the indicator selection, normalization, aggregation and weighting procedures as well as the use of the sovereign rating indicator in connection with climate change scenarios.

Suggested Citation

  • Denitsa Angelova & Francesco Bosello & Andrea Bigano & Silvio Giove, 2021. "Sovereign rating methodologies, ESG and climate change risk: an overview," Working Papers 2021:15, Department of Economics, University of Venice "Ca' Foscari".
    • Handle: RePEc:ven:wpaper:2021:15
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    References listed on IDEAS

    as
    1. Patrycja Klusak & Matthew Agarwala & Matt Burke & Moritz Kraemer & Kamiar Mohaddes, 2023. "Rising Temperatures, Falling Ratings: The Effect of Climate Change on Sovereign Creditworthiness," Management Science, INFORMS, vol. 69(12), pages 7468-7491, December.
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    Cited by:

    1. Małgorzata Iwanicz‐Drozdowska & Marzanna Lament & Bartosz Witkowski, 2025. "ESG Performance and Economic Growth in Europe," Sustainable Development, John Wiley & Sons, Ltd., vol. 33(6), pages 9180-9196, December.
    2. Julia Anna Bingler, 2022. "Expect the worst, hope for the best: The valuation of climate risks and opportunities in sovereign bonds," CER-ETH Economics working paper series 22/371, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    3. Christian Morgenstern & Guillaume Coqueret & James Kelly, 2024. "International market exposure to sovereign ESG," Post-Print hal-04325654, HAL.

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    Keywords

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    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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