Pricing ESG risk in sovereign credit - Federated Hermes

Building on their studies showing a strong relationship between the environmental, social and governance performance of companies and their credit spreads, Hermes has partnered with researcher Beyond Ratings to determine whether similar connections exist in the sovereign credit market.

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In this research article, Hermes considers whether there is a relationship between ESG factors and sovereign Credit Default Swap (CDS) spreads. They then explore which of the three ESG factors have the strongest relationship with sovereign CDS spreads and create an implied CDS spread curve that depicts the relationship between country-level ESG scores and sovereign CDS spreads.

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