‘Milestone’ as investor-led project delivers first country climate assessments

An investor-led project to empower sovereign bond holders to assess countries’ climate performance has published its first findings, with investors now expected to make use of the data to strengthen sovereign issuers’ response to climate change.

Backed by the likes of the Net Zero Asset Owner Alliance, BT Pension Scheme and the Church of England Pensions Board, the ASCOR framework was developed in public consultation with a range of stakeholders, including national governments, international financial institutions and civil society groups.

The tool, which has been in development since 2021, is expected to expand to cover 70 countries within the next one to two years, with the group today presenting the assessment results for 25 countries covering nearly 70% of global greenhouse gas emissions and 50-80% of the main sovereign bond market indices.

Mahesh Roy, director, investor strategies at the Institutional Investors Group on Climate Change (IIGCC), said the group hoped ASCOR’s analysis would help investors increase inclusion of sovereign bonds in their individual net zero investment strategies.

ASCOR’s findings were said to reveal three gaps:

1. an emissions gap due to a lack of ambition in countries’ targets and trends;
2. an implementation gap with insufficient sectoral policies to meet their targets; and
3. an international climate finance gap that high-income countries need to work towards closing.

More specifically, for example, ASCOR’s research found that although emissions reduction target-setting has become standard practice, hardly any 2030 targets are ambitious enough. Only four of 25 countries (Bangladesh, Barbados, Kenya and Morocco) have targets aligned with a 1.5°C “fair share” allocation, estimated based on historical emissions, income and population.

Adam Matthews, co-chair of ASCOR and chief responsible investment officer at the Church of England Pension Board, said there was a “clear message” from the ASCOR research, namely that commitments made by companies and investors would not be met without an enabling regulatory environment.

“This enables countries to have confidence they have the finance they need to meet greater ambition,” he continued. “Probably the single most helpful thing we as investors can do beyond our own individual commitments is to roll up our sleeves and engage practically with countries to focus on this ambition gap, and related finance, and work to close it.”

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