The investor-led sovereign debt assessment framework renews the third pillar, ahead of the publication of first country reports.
The Assessment of Sovereign Climate-related Opportunities and Risks (ASCOR) project has included climate spending indicators in its project updated assessment framework to better inform investors about countries’ risk management.
ASCOR is an investor-led project to work to develop a free, publicly available, independent tool that rates countries on climate change, aims to improve investors’ insight into the climate risks in their government bond portfolios.
Antonina Scheer, research project manager at the Transition Pathway Initiative (TPI) Center and one of the authors of methodology notestold ESG the “key” changes focused on a “deep reworking” of Pillar 3, which has been renamed ‘climate finance’ from ‘opportunities to finance the transition’.
This framework was initial consists of three pillars: emissions trajectories (historical emissions trends and alignment of climate objectives), climate policy (national policy efforts on climate) and options to finance the transition (the financing countries must implement their climate objectives).
Scheer explained that the Pillar 3 name change was made to cover a “clearer range” of financial topics, including international financial contributions, domestic disclosure and renewable energy opportunities.
ASCOR sought to integrate new topics into existing indicators rather than creating new, separate indicators. However, Scheer said “one important exception” was made with the introduction of an entirely new area for disclosure of government spending on climate action and the labeling of climate budgets under this renamed ‘climate finance’ pillar.
“This was an area that was missing from the previous framework and required in-depth research to develop an appropriate methodology, drawing on World Bank reports and other literature on climate budget tagging practices,” Scheer said.
“This was deemed important enough to inform investors about how countries are managing climate risks that a dedicated section in the framework is needed,” she added.
While Scheer said a “variety of changes” had been made based on a public consultation on the assessment framework, she emphasized that ASCOR was trying to avoid creating a “clunky tool” that would be difficult to assess and deploy the decision-making.
Speak with ESG in AugustCarmen Nuzzo, executive director of the TPI Center, also underlined the need to “find a balance” between adding indicators and being “realistic” about what was available and what could be compared.
The public consultation underlined the importance of fairness and rationalization of indicators to ensure the usefulness of the tool. Feedback from the consultation showed “strong support” for ensuring fairness for middle and low-income countries.
“The main ways in which feedback has influenced the framework is through revisions and deletions of indicators,” Scheer said.
In the original consultation document, ASCOR had a total of 19 subcategories with a total of 55 ‘yes’ or ‘no’ indicators, selected based on materiality, availability and comparability across the three pillars.
This number of subcategories has now been reduced to 13 and the number of indicators has been reduced to 39.
The framework’s indicators are assessed using specific policy analysis of published government laws and executive documents, Scheer added, noting that when the tool is published in early December, it will include resource links for each indicator to help users explore each topic based on their investment research needs. .
The publication of the framework methodology will be followed by the publication of assessments of 25 countries against revised indicators, including Britain, Australia, Bangladesh and Japan, which together account for almost 70% of greenhouse gas emissions.
Reaching new shores
From 2024, ASCOR will conduct new assessments of sovereign bond issuing countries, gradually expanding to country coverage.
The project is working expand further country coverage beyond 25 according to the December assessments, initially to 70 countries, but eventually to more than 100 countries included in the major government bond indices.
“Over time, the ASCOR project will likely revise the framework and methodology to remain relevant to both investors and issuers,” Scheer said. “For example, as specific reporting practices become commonplace and standardized, new indicators or metrics can be added to the framework.”
She notes that this may include a second consultation period.
ASCOR is backed by a coalition representing $5 trillion in assets under management, including the UN Net Zero Asset Owner Alliance, investor network Ceres, the Institutional Investors Group on Climate Change, the UN-convened Principles for Responsible Investment and Sura Asset Management.
ASCOR is supported by consultancy Chronos Sustainability, and its academic partner is the TPI Centre, based at the Grantham Research Institute on Climate Change and the Environment at the London School of Economics.
A key reason behind the creation of ASCOR was to “enable and provide a structure” for investor dialogue with policymakers to set expectations and send a “clear signal” on appropriate and ambitious climate action, said Dr. Rory Sullivan, CEO of Chronos Sustainability.