ASCOR: Consultation launches on the first public investor framework to assess sovereign bond issuers on climate change
Consultation Launch: Assessing Sovereign Climate-Related Opportunities and Risks (ASCOR) is the first, public investor framework to assess sovereign bond issuers on climate change
Dr Rory Sullivan
Many of our asset owner and asset manager clients have made commitments to net zero. While methodologies for assessing greenhouse gas emissions and for assessing climate-related investment risk are reasonably well developed in listed equities, corporate fixed income, property and infrastructure, the same cannot be said of sovereign debt. At present, there is no universally accepted way for investors to assess sovereign debt from a climate change perspective.
The Assessing Sovereign Climate-related Opportunities and Risks (ASCOR) Project has been established to address this gap. ASCOR - led by a coalition of asset owners and asset managers and supported by the Principles for Responsible Investment and by the international investor climate change networks - aims to develop a framework that allows investors to incorporate financially material climate change information when assessing sovereign bond investments. This framework will support investors in achieving their net zero goals, and help investors to engage with national governments on climate change policy.
ASCOR has launched a consultation on its draft framework. The framework proposes assessing sovereigns across three themes, two relating to the effectiveness and performance of sovereigns in managing climate change and one relating to the climate risks and opportunities that a country faces. The themes are:
· Emission pathways: This pillar considers historical emission trends and the alignment of forward-looking national emission reduction targets with international climate goals. These indicators provide an understanding of mitigation ambition.
· Climate policies: This pillar considers national policymaking efforts to mitigate emissions, adapt to climate change, and ensure a just transition. These indicators provide a deepened understanding of the credibility and implementation of emission targets and also provide richer qualitative and quantitative data on priority climate policy areas.
· Opportunities to finance the transition: This pillar considers the financing countries may need to implement climate goals. These indicators are critical given that many countries facing the greatest climate-related risks currently have insufficient access to financing.
When the framework is fully developed it is our expectation that it will become the industry reference framework for sovereign debt investors and issuers, allowing investors to speak with a common voice on their expectations of government, to better integrate climate-related considerations into their investment research and decision-making processes, and to assess the climate actions being taken by sovereigns. These changes mean that ASCOR could materially alter the manner in which investors treat sovereign debt in their net zero strategies.
Notes:
1. Further information regarding the ASCOR Consultation can be found at: https://www.ascorproject.org/ascor-consultation-to-assess-sovereign-debt-issuers-on-climate-change The survey closes on 31 March 2023.
2. The draft framework can be found at: https://transitionpathwayinitiative.org/publications/112.pdf?type=Publication
3. ASCOR is co-chaired by BT Pension Scheme Management and the Church of England Pensions Board.
4. ASCOR was established with the UN-convened Net-Zero Asset Owner Alliance (AOA), Ceres, the Institutional Investors Group on Climate Change (IIGCC), the Principles for Responsible Investment (PRI), and Sura Asset Management,
5. The ASCOR project is supported by Chronos Sustainability.
6. ASCOR’s academic partner is the Transition Pathway Initiative (TPI) Global Climate Transition Centre, based at the Grantham Research Institute on Climate Change and the Environment, London School of Economics and Political Science.