388156594
388156594

Belgium still has some way to go on sustainability

Economic opinion

388156594

Since 2002, KBC Economics has calculated the sustainability profile of countries on an annual basis. This calculation produces a country ranking, known as the KBC Sustainability Barometer, which serves as the basis for the investment choices in government bonds for KBC’s Responsible Investing funds. In the latest update of the ranking, made end 2022, Belgium scores 16th in the group of 110 (both developed and emerging) countries considered. Not bad in itself, but compared to relevant peers, such as neighbouring countries, or the euro area average, that performance is rather mediocre to weak. For one of the five sustainability themes in the analysis, namely ‘Environmental performance and commitment’, Belgium even scores among the 50% worst performing countries. It is important that Belgian authorities take the country’s sustainability performance to heart. After all, countries that invest in the sustainable promotion of the well-being of their citizens thereby lay the foundations for favourable and stable political-economic development in the future as well. 

We define a country’s sustainability as “the set of achievements, institutions and policy efforts that promote the well-being of the current and future population in a sustainable manner, without compromising the well-being of populations in other countries and the environment”. To measure it, we use a scoring model based on five themes: (1) General economic performance and stability, (2) Socio-economic development of the population, (3) Equality, freedom, and rights of the population, (4) Environmental performance and commitment, and (5) Security, peace and international relations. Each theme is in turn subdivided into three sub-indicators. A detailed description of the screening approach, as well as the most recent country ranking (the so-called KBC Country Sustainability Barometer) can be found in a KBC Research Report published together with this opinion. 

In the latest update of the country screening, finalised end 2022, Belgium obtains 16th place out of a total of 110 (developed and emerging) countries considered. This is the same position as in the previous screening and in itself not a bad result. But when we compare Belgium with more relevant peers such as its neighbouring countries, or with the euro area average, Belgium’s sustainability performance is not so convincing after all. Especially the Netherlands and Germany, but also France, do better. These three countries rank 6th (improvement by one place), 8th (deterioration by two places) and 15th (deterioration by two places) respectively in the latest country ranking. Within the euro area, there are countries, especially in Southern Europe, that score (much) worse than Belgium. 

But even compared to the (GDP-weighted) average ranking of the euro area countries (a 14th place), Belgium’s score is rather mediocre.     

Figure 1 shows the relative performance of Belgium compared to its three neighbouring countries and to the euro area average since the KBC Sustainability Barometer was first calculated in 2002. The additional countries taken into account in successive annual screening exercises (e.g. because the required figures became available) are not included in the figure so as not to distort the comparison with previous years.1 Belgium consistently scored worse than the Netherlands and Germany over the entire period 2002-2022. Its position relative to France was alternately worse or better, but since 2017 Belgium’s place in the ranking has also been below that of France. In 2021, Belgium also dropped below the GDP-weighted average ranking of euro area countries.

Poor score for environment theme

Table 1 shows the standardised scores in the latest update (between 0 and 100) for the five sustainability themes. Belgium’s score, within the group of 110 countries considered, is the highest for the 5th theme (‘Security, peace and international relations’). It owes this mainly to its strong international openness, as reflected in the Index of globalisation. Also for the 3rd theme (‘Equality, freedom and rights of the population’), the Belgian score is quite good, although the Netherlands and Germany score better. Striking within this theme is the gap between Belgium’s good performance on inequality among the population and its weaker performance on ease of doing business. For the 1st theme (‘General economic performance and stability’), the score is also decent, although all neighbouring countries now perform better. Within this theme, future business potential and the quality of institutions are areas of concern.

For the 2nd theme (‘Socio-economic development’), the score is already much weaker and again worse than that of the Netherlands and Germany. This is due to the relatively weak score for the subindicators measuring performance and policy efforts on education, labour force participation and population health. Belgium’s performance is downright poor for the 4th theme (‘Environmental performance and commitment’). It corresponds to a paltry 80th place in the country ranking. This places Belgium among the 50% worst performing countries for this theme. For the three sub-indicators of the 4th theme, Belgium’s performance in each case is (substantially) worse than that of all three neighbouring countries. It is clear that Belgium still has a long way to go in the area of the environment if it wants to leave its relatively unsatisfactory score behind. 

Countries that invest in the sustainable promotion of their citizens’ general well-being thereby lay the foundations for  also favourable and stable political-economic development in the future.2 The sustainability performance of countries, in combination with the traditional ratings of credit rating agencies, is thus a powerful tool to assess the risk of government bonds and make better-informed investment decisions. It is therefore important that the Belgian authorities take the sustainability performance of the country, more specifically in the area of the environment, to heart.  

1 Singapore is one of those countries. Including Singapore, Belgium also ranked 16th in the previous screening we did at the end of 2021, as in the current update. Excluding Singapore, it then ranked 15th, as shown in the figure.  In the current update, Singapore is behind Belgium.  

2 The link between sustainability issues on the one hand and economic development and political stability on the other has been amply demonstrated in the literature. See, for example, Mellios & Paget-Blanc (2006) and North et al (2008).

 

Disclaimer:

Any opinion expressed in this KBC Economic Opinions 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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