WWF and Investec Asset Management have released a new report, outlining the opportunity that investors in sovereign debt have to put the global economy on a sustainable path.
The published report, titled ‘Satellites and sustainability: New frontiers in sovereign debt investing’, argues that the destruction of nature poses risks to national economies, and consequently the ability of nations to repay debt. As a result, sovereign bond investors need to address environmental risks in their portfolios.
Alongside these findings, it also reveals potential solutions for sovereign debt investors. The report details that the analysis of geo-spatial data and satellite imagery will increasingly allow investors to obtain more accurate assessments of environmental degradation.
The data could enhance the potential for investors to evaluate environmental risks. Consequently, this could improve their ability to encourage sovereign issuers to adopt fiscal agendas that deliver for people, investors and the planet. It also shows how new research techniques which utilise spatial data in finance are transforming the ability of sovereign-debt portfolio managers to assess environmental risks. Insights obtained from such techniques could be used to both manage investor risk and encourage sovereign issuers to adopt environmentally responsible fiscal agendas.
The research adds to an emerging field of spatial finance. It brings together both geospatial data and earth observation, such as satellite imagery and financial analysis.
Peter Eerdmans, head of Fixed Income, Investec Asset Management, argued that the report highlighted the importance of environmental factors in regards to debt portfolios.
He said: “There is mounting evidence that environmental factors can shape the destinies of national economies and materially influence sovereign debt portfolios. Spatial analysis has the potential to transform the way sovereign debt investors address the risks and opportunities arising from the stresses on the natural world.”
Ray Dhirani, head of Sustainable Finance and Green Economy, WWF-UK, emphasised the important role sovereign debt investors could play in making the investment industry more environmentally sustainable.
He said: “We are the first generation to know we are destroying our planet and the last one that can do anything about it. Sovereign debt investors are uniquely placed to help in the fight for our world, through a robust and comprehensive integration of environmental considerations into their investment and government engagement strategies.”
