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October 22, 2021

How sovereign debt issuers can build sustainable economies

The ESG in Credit Risk and Ratings initiative from the UN-supported Principles for Responsible Investment (PRI) provides a key platform for regular, constructive engagement with investors and other credit practitioners alike. For over five years, Moody’s has partnered with the PRI, the world's leading proponent of responsible investment, to support efforts to ensure a transparent and systematic integration of ESG factors into credit analysis and ratings. Anne Van Praagh, Managing Director of Global Sovereign Risk at Moody’s Investors Service, recently took part in a panel discussion at the PRI’s digital conference. The panel explored the financial implications of the structural changes required to create a low-carbon enabling environment, and how to scale up engagement to create public-private sector partnerships.

Key takeaways include:

• As countries emerge from the pandemic shock, a key challenge over the next two years is how sovereign debt issuers can repair their balance sheets and restore financial buffers ahead of the next shock. The pace of economic recovery and rebuilding fiscal strength will differentiate sovereigns’ ability to manage shocks, including climate events and natural disasters.

Emerging market sovereigns have relatively higher exposure and sensitivity to physical climate risks, particularly those with high dependency on climate-vulnerable sectors, like tourism and agriculture, and low-quality infrastructure and health care systems.

For more information on how Moody’s Investors Service systematically incorporates material ESG considerations and climate change into credit analysis, visit: https://esg.moodys.io/solutions#credit-ratings