Sustainability-focused asset management firm CANDRIAM announced today the launch of its updated Sovereign Sustainability Model. The model, used for sovereign sustainability analysis for investors, places a core focus on countries’ management of natural capital, including considerations around climate change and environmental preservations. According to CANDRIAM, the update highlights how the emphasis of sovereign analysis must shift from economic development to sustainable development.
In prior models, CANDRIAM placed four types of capital – Human Capital, Social Capital, Economic Capital, and Natural Capital – on the same level in its sovereign analysis approach. In the new update, however, the Natural Capital score acts as a multiplier for the other three types of capital. This new approach recognizes that Natural Capital cannot be replaced with other forms of capital.
In addition, CANDRIAM’s analysis found that most of the environmental impact over the coming decade has already been determined by current and past economic activities. According to the firm, these factors indicate that how countries manage their Natural Capital will, to a significant extent, shape their social and economic development.
Vincent Hamelink, Chief Investment Officer at CANDRIAM, said:
“We are excited to launch our updated Sovereign Sustainability model which recognises that the destruction of our natural environment produces long-term economic and social consequences. The investment community must integrate these factors in order to maximize long term value creation.”
CANDRIAM highlighted the impact that the new methodology had on its country rankings. While Switzerland remained as the top ranked country under the updated model, Australia dropped significantly to 28th place, due to the country’s high carbon footprint, as well as its reliance on mining and hydrocarbon exports to a much greater extent than its peer group. Norway and the Netherlands each dropped 8 spots, driven by the countries’ high oil and gas exports, and still-high proportion of fossil fuels-based energy generation, respectively.
Kroum Sourov, Sovereign Sustainability Analyst at CANDRIAM said:
“While we are excited to see increased recognition of the importance of climate change and environmental preservation by regulators, we believe that industry should take the lead in implementing changes in the way that we think about production, consumption, and investing. Sustainability issues can no longer be papered over, as the cracks have become just too large.”
Click here to see CANDRIAM’s complete Sovereign Analysis report.