S&P ESG Pan-Europe Developed Sovereign Bond Index. June 2015

Transcription

1 S&P ESG Pan-Europe Developed Sovereign Bond Index June 2015

2 Content 1 Introduction 2 RobecoSAM Country Sustainability Ranking 3 S&P ESG pan-europe Developed Sovereign Bond Index 4 Conclusion 2

3 Introduction The financial crisis has shown that market participants significantly underestimated the importance of country risks in their sovereign fixed-income portfolios: Yields on European government bonds (10Y) Source: Markt-Daten.de, as at 08/01/ Greece Portugal Spain Ireland Italy Germany 3

4 Introduction Investment rationale of S&P ESG Sovereign Bond Index family Integrate countries Countries with a The resulting index The RobecoSAM sustainability favorable ESG family shows both Country Sustainability profile into the profile receive a an improved Ranking provides weighting scheme higher weight ESG profile and the underlying for sovereign bond compared with pure improved risk/ research indices debt-weighted indices return profile methodology 4

5 RobecoSAM Country Sustainability Ranking Overview Robeco and The analysis Data and analysis The RobecoSAM RobecoSAM have comprises all history going back Country developed a developed and to 2008 Sustainability sustainability emerging market Ranking is used as analysis model to countries the basis for assess countries sovereign fixed- long-term income investment environmental, solutions social and governance risks 5

6 RobecoSAM Country Sustainability Ranking Integrated approach Integration of ESG risk factors into classical country assessment In addition to fiscal stability, such factors as social stability or political risk are assessed The analysis shows the long-term stability of a country from an investor s perspective This is particularly important in emerging markets where legal, social and political stability is often neglected in investment decisions Debt Sustainability ESG Profile Economic Cycle 6

7 RobecoSAM Country Sustainability Ranking Debt Sustainability ESG Profile Economic Cycle Political Risk Debt Labor Credit Rating Growth Current Account Interest Payment Change in Debt Budget Balance Governance Social Enviromental Inflation Indicators Inflation Producer Consumer 7

8 RobecoSAM Country Sustainability Ranking ESG analysis addresses important issues: ENVIRONMENTAL How dependent is a country on energy imports? How energy efficient is the country and what is the percentage of renewable energy? SOCIAL Are there social problems due to wealth disparity? Is there a social system that can absorb economic or social shocks? Are social systems financed in a sustainable way? GOVERNANCE Is there an effective legal system to enforce legal claims? Are key institutions (central bank, supreme court) independent of the government? Is there an effectively operating tax system? 8

9 RobecoSAM Country Sustainability Ranking The ESG country assessment is based on well-known public sources: Overview of information sources ENVIRONMENTAL SOCIAL GOVERNANCE EIRIS IEA UN Energy The World Risk Report (Alliance Development Works) EIRIS Fragile States Index UN Human Development Index EIRIS World Bank (various databases) PRS political risk rating World Economic Forum S&P HelpAge 9

10 RobecoSAM Country Sustainability Ranking Example: Political risk score within the governance score Political risk score (100 is best possible) / / / / / / / /2014 Greece Germany 10

11 RobecoSAM Country Sustainability Ranking Weighting scheme of dimensions and sub-indicators: Every sub-indicator is scaled to the interval Aggregation of scores based on a pre-defined scorecard: Detailed overview indicators ESG country ranking Robeco INDICATOR (WEIGHT%) SUB INDICATORS E 15% Environmental Status (10%) Atmosphere Water Land Energy (2.5%) Energy use Renewables Imports Biodiversity and Institutional Capacity Environmental Risk (2.5%) Exposure to natural hazards Susceptibility Coping capacities Adaptive capacities Social Indicators (10%) Education and human welfare Work and equality S 25% Human Development (10% ) Health Education Living Standards Social unrest (5%) Riots & Protests Refugees Brain drain Group grievance Food and water scarcity G 60% Liberty & Inequality (10%) Competitiveness (10%) Political rights Institutions Civil liberties Infrastructure Quality of Governance and Gender Inequality Index Macroeconomic environment Health and primary education Higher education and training Goods market efficiency Labor market efficiency Financial market development Technological readiness Market size Business sophistication Political Risk (10%) Government Stability Socioeconomic Conditions Investment Profile Internal Conflict External Conflict Corruption Military in Politics Religious Tensions Law and Order Ethnic Tensions Democratic Accountability 11

12 RobecoSAM Country Sustainability Ranking Detailed overview indicators ESG country ranking Robeco INDICATOR (WEIGHT%) SUB INDICATORS Accountability (2.5%) Confidence in honesty of elections Press Freedom Index Media Sustainability Index Political Participation Stability (2.5%) Frequency of political killings Conflicts of ethnic, religious, regional nature Civil unrest G 60% Government effectiveness (2.5%) Regulatory Quality (2.5%) Rule of Law (2.5%) Corruption (2.5%) Aging (10%) Institutions (5%) Quality of public administration Trade policy Property rights Anti-Corruption policy Dependency ratio Burden of government regulation Satisfaction with public transportation system Price liberalisation Judicial framework Public trust in financial honesty of politicians Dependency ratio change Judicial independence Bureaucratic quality Ease of Starting a business Confidence in the police force Frequency of corruption Official retirement change Property rights Tax Effectiveness Access to land Age-related spending change Intellectual property protection AgeWatch index Efficiency of legal framework in settling disputes Efficiency of legal framework in challenging regulations Transparency of government policymaking Strength of audditing and reporting standards 12

13 RobecoSAM Country Sustainability Ranking Top 10 and bottom 10 countries (Data as of April 10, 2015) Governance Social Environmental

14 RobecoSAM Country Sustainability Ranking Objective Integrate country Integration is Index methodology Weighting scheme ESG profile into achieved by tilting is to improve the to reduce exposure existing debt- country weights overall ESG profile to highly indebted weighted sovereign toward the more of the index and the countries seen in bond index sustainable risk/return profile standard countries in the benchmarks underlying benchmark index 14

15 Tilt factor S&P ESG pan-europe Developed Sovereign Bond Index Index methodology The index is based on the existing S&P sovereign bond index universe Country weights are tilted toward more sustainable countries by using a tilt factor: % x ESG country score +25 % x yearly change of score Average The tilt factor is a linear function of 75% x score + 25% x yearly change of score The country scores are normalized using z-scores to ensure comparability across years 15

16 S&P ESG pan-europe Developed Sovereign Bond Index Back test performance (EUR, June 2015) Source: S&P S&P ESG Pan-Europe Developed Sovereign Bond (EUR) S&P Pan-Europe Developed Sovereign Bond (EUR)

17 S&P ESG pan-europe Developed Sovereign Bond Index Back test cumulative outperformance (EUR, June 2015) Source: S&P 12% 10% 8% 6% 4% 2% 0% -2% -4% 17

18 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 S&P ESG pan-europe Developed Sovereign Bond Index Back test country allocation Source: S&P 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Switzerland Sweden Spain Portugal Norway Netherlands Italy Ireland Greece Great Britain Germany France Finland EU Denmark Belgium Austria 18

19 Conclusion The S&P ESG Instead of purely The index method- The S&P ESG pan- Sovereign Bond weighting countries ology achieves an Europe Developed Index methodology according to improvement in Sovereign Bond offers an alternative outstanding debt, the financial perfor- Index will to the well-known the S&P ESG mance across the be extended to problem of debt- Sovereign Bond business cycle, risk a family of indices weighted bond Index methodology figures, the Sharpe covering Europe, indices tilts country weights ratio and the overall the Eurozone, global toward more ESG profile of the developed and sustainable underlying index emerging markets countries portfolio compared with a debtweighted index 19

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