Pacific Island nations are on the frontlines of climate change. On behalf of regional Finance and Economy ministers, Ekaterina Gratcheva and I analyzed the returns and management of their national funds, many of which are larger than 100% of GDP. These funds play an outsized role in providing for the future wellbeing of citizens in Pacific Island nations. The analysis aimed to fill the vacuum of comparable information about fund performance, fees, and management. Greater transparency empowers policymakers to make prudent decisions in the best interest of their citizens.
I helped formulate the strategy for benchmarking investment returns and risk in the context of limited data, and compatibility challenges. We built off of the work of New Zealand's sovereign wealth fund in benchmarking the performance of active managers against reference portfolios comprised of easily implementable, low-cost, internationally diversified passive portfolios. I performed the quantitative investment analysis using R.
How can we fix the structural problems of Sovereign ESG investing, and better align it with the achievement of sustainability goals?
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.
How can sovereign debt issuers manage rising climate risks, and finance the investments necessary to achieve the goals of the Paris Climate Agreement and the SDGs? As part of a team including former Chilean minister of finance, Felipe Larraín, we documented Chile's experience re-orienting its sovereign debt issuance to be better aligned with fulfilling its ambitious sustainability goals.