Saudi Arabia is on the blacklist of an entrepreneurial investment fund

The best performing emerging market bond fund avoids investing in Russia, China and Saudi Arabia, as the three countries score very low in their ratings of environmental, social and governance risks, which puts them on the blacklist for the Candrename Fund. The $ 1.5 billion Candrename Emerging Funds Fund has outperformed nearly 90 percent of its peers in the past three years. And 25 percent of countries are blacklisted at the bottom of the fund’s rating, regardless of the size of the role they play in the bond world.

This approach may be a harbinger of the challenges facing the governments of developing countries that depend on foreign capital, according to a report published by “Bloomberg” agency Friday. Currently, the costs of sovereign borrowing do not usually take into account factors such as a commitment to reduce carbon emissions or curbing corruption, but they may do in the future.

“Investing in the environment, society and governance is gaining pace in emerging market lending. It is clear that investors will increasingly look to compensation for risks associated with environmental, social and corporate governance,” Magda Branet, vice president of the emerging market debt fund at Candriam, told Bloomberg. . They will request a higher risk premium from countries that score poorly on their benchmarks. ”

The Kandriam model assesses how countries have access to natural, human, social and economic capital. Regimes deemed undemocratic or repressive are excluded, along with those with a credit rating below B- or six levels below investment grade.

Currently, the model excludes 33 emerging markets, and the model is reviewed regularly, giving poorly ranked countries the opportunity to move to the investment list if they improve. There is currently no standard for applying environmental, social, and corporate governance (ESG) to sovereign debt, which makes most fund managers who wish to incorporate reliance on internal analysis.

Very few funds exclude major emerging markets due to lower scores in the industries. But misuse of ESG ratings is making it difficult for investors to protect themselves, according to Christine Kong, head of sustainable finance at the Hong Kong Securities and Futures Authority.

Bram Boss, portfolio manager at NN Investment, said that investor demands are changing and that it is likely that ESG measures will start to affect borrowing costs. Governments and companies selling green bonds are already starting to see the fruits of compliance with the standards.

Boss, whose company runs 287 billion euros ($ 336 billion), explained: “In the past there was a promotional campaign when governments issued bonds and it was all about macroeconomic foundations. Nowadays, with green bonds and social bonds, other topics are also discussed and this It gives investors another tool to pressure governments. ”