As many as 15 governments that issue debt in hard currency through capital markets have worse environmental, social and governance (ESG) profiles than Russia, according to research published on June 9 by Verisk Maplecroft.

The risk consultancy said that the Russian invasion of Ukraine has raised “difficult questions” over the approach to ESG taken by fund managers holding government bonds issued in frontier and emerging markets (EMs).


Verisk Maplecroft said that for all the “talk of ethics” among investment funds, this has not yet been translated in practice. It noted that beyond Russia, “there has been little significant change” in holdings within EM portfolios in countries that have “highly questionable ESG profiles”.

James Lockhart-Smith, the head of markets at Verisk Maplecroft, said: “Geopolitical shifts suggest that the previous assumption that all EMs in a portfolio can be gradually prodded into alignment with the values of ESG investors no longer holds”. 

The risk consultancy assessed the ESG risks of 87 emerging and frontier markets across nine dimensions including natural capital endowment and protections, health education and resource security, as well as institutional strength. 

It noted there could be heightened credit risks as “weak ESG fundamentals will make it much harder” for governments to withstand global macroeconomic pressures, including inflation, energy supply shocks and future interest rate hikes in the US and Europe.

Egypt and Turkey were highlighted as prominent examples, since both countries have issued more hard currency debt than Moscow, but demonstrate human and labour rights violations and governance issues.

Turkey recorded the second-worst governance score of any investable market behind Ethiopia, according to Verisk Maplecroft. The research said the country’s institutional environment has worsened amid political risks, spreading corruption and a weakening of democratic governance and judicial independence. 

Meanwhile, Egypt also scored poorly on governance because of eroding democracy and judicial independence. The risk consultancy said that the north African country is “likely to be more fragile to unrest because of its exceptionally repressive governance profile under [president Abdel Fattah] Al-Sisi”.

Three Latin American countries — Venezuela, Peru and Bolivia — also recorded worse sovereign ESG scores than Russia. Verisk Maplecroft suggested for bond investors to watch out for Peru in particular, where volatile domestic politics has coincided with social protests targeting mining, agriculture and other key sectors.

“The result is that miners and other corporates are leaving investment plans on hold despite record high global metals prices,” read the report.

Verisk Maplecroft also stated that other sovereign debt issuers popular among investors, such as China, Saudi Arabia and Indonesia, “should also merit fresh scrutiny” as they do not perform much better than Russia on ESG.

“Investors’ willingness to step away from Russia, where their hand was forced by sanctions anyway, contrasts with their ongoing involvement in China,” said Eileen Gavin, principal markets analyst at Verisk Maplecroft. 

She explained that while China’s “complex and often problematic ESG situation” is primarily an issue for Western corporates and their investors, sovereign Chinese bonds remain a fixture of portfolios.