Six Metrics Light the Path to Sustainability for Emerging-Market Sovereigns

Just six metrics can effectively assess sovereign issuers’ sustainability and provide guidance for both issuers and investors.

From a sustainability perspective, investing in sovereign emerging-market (EM) debt can feel messy. Most investors feel just familiar enough with individual EM countries to fall prey to subjective judgments when making comparisons. The market tends to overreact to news—good news, bad news and often both at once. And huge, complex data sets bog down analyses and muddy the view.

That’s why we’ve charted a new path: one that sheds light on sovereign EM investing through a small set of concrete metrics that help identify potential value and provide guidance for both issuers and sustainable investors.

Gauging Sustainability with Precision Metrics

To solve the problems of subjectivity, reactivity and obscurity, we’ve identified six measures by which a sovereign issuer may be ruled in or out of an investable universe of sustainable sovereign debt.

We began with the 17 UN Sustainable Development Goals (SDGs), which we recognize as a blueprint for identifying sustainable investments. Together, these 17 SDGs comprise 169 specific sub-targets. From these, we selected six that represent the broader investment themes of climate, health and empowerment. We believe that these six sub-targets capture the spirit of the larger list. They cover the transition to low-emissions energy consumption; biodiversity; hunger; infant mortality; equal employment opportunities; and institutional strength (Display).

Sovereign Eligibility Requires Alignment with Six UN SDG Sub-Targets