Sovereign fixed income: an update on our ESG scores – Franklin Templeton

Country institutions and income inequality have contributed to various problems with food insecurity, as well as impacting their ability to deal with it. Templeton Global Macro take a closer look and highlight five country case studies.

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... In February 2018, Templeton Global Macro (TGM) released its original paper on environmental, social and governance (ESG) factors in sovereign fixed income investing. The Global Macro Shifts – issue 9 paper (GMS-9) explored the team’s novel approach to ESG investing, which did not just measure current ESG levels as a screen but focused on projected changes in ESG scores that might have revealed opportunities for investment as well as emerging risks to avoid. TGM has conducted similar research on the effects of ESG on macroeconomic conditions for decades. The 2018 paper was the first time insights were publicly codified into an ESG scoring system.

Since the publication of GMS-9, TGM has released updates of its ESG research and scores every six months (spring and fall). These regular updates contain scores by country, and projected future scores. They also have sections on current ESG and sovereign investing, along with brief case studies on specific countries. A recap of TGM’s philosophy, scoring process and an update of any refinements in their methodology is also included. The TGM-ESG Index has evolved since its establishment in 2018.

In this October 2022 publication, Franklin Templeton provide updated ESG scores for the countries in our actively covered universe. We have reduced the number of countries we actively cover to 84, to account for sanctions and investability. Franklin Templeton provide an updates to the measurement process for the 'unsustainable practices', 'water security' and 'labour freedom' subcategories. Franklin Templeton's special topic in this update looks at food insecurity, as the Russia-Ukraine war has exacerbated trends that have already been worsening for years. A host of variables, from the effects of climate change to factors such as a country’s institutions and income inequality, have contributed to various countries’ problems with food insecurity as well as impacting their ability to deal with it. The paper concludes with case studies covering ESG factors in Spain, Serbia, Thailand, Malaysia and Kenya.

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