Investment in socially responsible government bonds: Emerging market sustainability update 2022

Research report

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Emerging market sustainability update: 2022

Abstract

Over the past several decades, emerging markets have become increasingly integrated into the global financial system. Against a backdrop of historically low interest rates in developed markets, higher-yielding emerging market government debt (‘emerging debt’) gained growing interest from investors. As a result, the growth of emerging market government debt outstanding (excluding China) has outpaced that of advanced economies over the past twenty years (including China, the gap is even larger).

Given the growing importance of socially responsible investing (SRI) and the higher risk typically associated with emerging market assets, it is important to be able to assess whether emerging debt meets certain sustainability criteria related to economic stability, good governance, and environmental and social impacts. In connection with the SRI funds offered by KBC Asset Management, in this research report we present an update of the KBC Emerging Markets Sustainability Barometer (made end-2021), produced by screening an extensive group of emerging markets to arrive at a ‘Best-in-Class’ socially responsible investment universe. 

To qualify as ‘Best-in-Class’ within the emerging markets screening, a country must, at a minimum, rank in the top 35% of countries screened. We then apply further criteria in that a country must not rank among the 10% worst performing countries for any of the five pillars that make up the sustainability barometer score, must not rank within the top 50% of KBC’s list of ‘controversial regimes’, and must meet the criteria of the Central Labelling Agency.

This leaves us with 18 emerging markets in which the KBC SRI funds can invest: Slovenia, the Czech Republic, Estonia, Lithuania, Slovakia, Latvia, Hungary, Croatia, Poland, Romania, Greece, Chile, Bulgaria, Mauritius, Uruguay, Costa Rica, Georgia and Montenegro. Central and Eastern Europe scores very well: 11 of the 18 selected countries in the SRI universe are from this region.

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Disclaimer:

Any opinion expressed in this publication represents the personal opinion by the author(s). Neither the degree to which the hypotheses, risks and forecasts contained in this report reflect market expectations, nor their effective chances of realisation can be guaranteed. Any forecasts are indicative. The information contained in this publication is general in nature and for information purposes only. It may not be considered as investment advice. Sustainability is part of the overall business strategy of KBC Group NV (see https://www.kbc.com/en/corporate-sustainability.html). We take this strategy into account when choosing topics for our publications, but a thorough analysis of economic and financial developments requires discussing a wider variety of topics. This publication cannot be considered as ‘investment research’ as described in the law and regulations concerning the markets for financial instruments. Any transfer, distribution or reproduction in any form or means of information is prohibited without the express prior written consent of KBC Group NV. KBC cannot be held responsible for the accuracy or completeness of this information.

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