Demystifying Sovereign ESG

Sovereign Debt
World Bank
As ESG investing has progressed from its origins in equity markets to sovereign fixed income markets, what exactly does ‘Sovereign ESG performance’ measure? We find that Sovereign ESG scores are highly correlated with a country’s level of income. This ingrained income bias has the potential to skew capital flows towards rich countries and away from developing nations, exacerbating SDG funding gaps, and incentiving investment in countries with higher per-capita CO2 emissions.

Ekaterina Gratcheva

World Bank

Teal Emery

World Bank

World Bank


May 20, 2021

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The evolution of sustainable finance to mainstream finance has been motivated by a growing demand for the financial sector to play a greater role in the transformation of the current economic model into a more sustainable one. The introduction of the United Nation’s (UN) Sustainable Development Goals and the Paris Agreement on climate change in 2015 have helped galvanize a societal shift to ensure a sustainable future and to fight climate change in particular. As a result, the pace of environmental, social, and governance (ESG) integration, which has become the most prevalent form of sustainable finance, has accelerated in recent years. Market participants continue to grapple with adapting the ESG framework to the sovereign context, despite significant progress of ESG integration in the corporate bond and equity asset class. This challenge is due to the multifaceted nature of ESG-related issues facing governments in relation to corporate entities, as well as a more complex transmission mechanism of the sovereign debt asset class to sustainable outcomes in the real economy. This paper demystifies sovereign ESG as a distinct segment of the ESG sector by assessing the major sovereign ESG providers that have laid the foundation for the operationalization of ESG investing in sovereign fixed income markets.

Citation Information


BibTeX citation:
  author = {Gratcheva, Ekaterina and Emery, Teal and Wang, Dieter},
  publisher = {World Bank},
  title = {Demystifying {Sovereign} {ESG}},
  date = {2021-05-20},
  url = {},
  langid = {en}
For attribution, please cite this work as:
Gratcheva, Ekaterina, Teal Emery, and Dieter Wang. 2021. “Demystifying Sovereign ESG.” World Bank.