Environmental, Social and Governance (ESG) is increasingly taken into consideration by financial and institutional players, yet sovereign risk analysis still faces the challenge of its systematic integration. Recent efforts, like the United Nations’ UN-PRI initiative, or the BIS’ Green Swan reports, have taken up the issue to highlight the importance of the ESG and Sustainability viewpoint.

This paper lays out a methodology that integrates holistically, and objectively, ESG performance and traditional economic and financial metrics in the sovereign risk analysis. Developed by the London Stock Exchange Group’s Beyond Ratings, Sovereign Risk Monitor (SRM) is a proprietary methodology that uses systematic analysis to offer a rigorous assessment of sovereign risk. SRM includes 69 indicators of sovereign creditworthiness from 146 economies assessed quarterly, within a statistical and econometric framework.

The main outcome of this innovative approach is a Scorecard for each country, which includes:

  • Main strengths and weaknesses;
  • Evolution and relative position of aggregate profile, pillar and risk theme scores;
  • Ranking and deviation from regional and income peer group.