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The Convergence of Sovereign Environmental, Social and Governance Ratings

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  • Bouye,Eric
  • Menville,Diane Dorothy

Abstract

This paper studies sovereign environmental, social, and governance (ESG) ratings from the qualitative and quantitative angles. First, it introduces the landscape for sovereign ESG ratings. Second, it provides a comparison with the history of credit ratings, factoring in that ESG ratings are in an early development stage. Third, the paper reviews different actors, key issues, including taxonomy, models and data from different providers. The paper provides a qualitative assessment of the convergence of ratings among providers by introducing a factor attribution method, that maps all providers' ratings into a common taxonomy defined by the United Nations-supported Principles for Responsible Investment (UNPRI). Then, a quantitative analysis of the convergence is performed by regressing the scores on variables from the World Bank sovereign ESG database. A noticeable contribution to the literature is a high level of explanatory power of these variables across all rating methodologies, with a R2 ranging between 0.78 and 0.98. An analysis of the importance of variables using a lasso regression exhibits the preponderance of the governance factor and the limited role of demographic shifts for all providers.

Suggested Citation

  • Bouye,Eric & Menville,Diane Dorothy, 2021. "The Convergence of Sovereign Environmental, Social and Governance Ratings," Policy Research Working Paper Series 9583, The World Bank.
    • Handle: RePEc:wbk:wbrwps:9583
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    References listed on IDEAS

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    1. Richard Cantor & Frank Packer, 1996. "Sovereign risk assessment and agency credit ratings," European Financial Management, European Financial Management Association, vol. 2(2), pages 247-256, July.
    2. Karl V. Lins & Henri Servaes & Ane Tamayo, 2017. "Social Capital, Trust, and Firm Performance: The Value of Corporate Social Responsibility during the Financial Crisis," Journal of Finance, American Finance Association, vol. 72(4), pages 1785-1824, August.
    3. Nordhaus, William D, 1977. "Economic Growth and Climate: The Carbon Dioxide Problem," American Economic Review, American Economic Association, vol. 67(1), pages 341-346, February.
    4. Bernhard Bartels, 2019. "Why rating agencies disagree on sovereign ratings," Empirical Economics, Springer, vol. 57(5), pages 1677-1703, November.
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    Cited by:

    1. Ana Maria (MĂRĂȘESCU) NECULA, 2024. "ESG Global Score Indicator – The new sovereign rating Case study – European Union," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(2(639), S), pages 269-278, Summer.
    2. Xidonas, Panos & Corrente, Salvatore & Samitas, Aristeidis & Lekkos, Ilias, 2026. "On sovereign sustainability assessment: A multiple criteria decision aiding approach," European Journal of Operational Research, Elsevier, vol. 331(2), pages 570-586.

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