Step 1: ESG Considerations in Sovereign Debt

Integrating ESG factors into sovereign debt involves assessing a country's environmental, social, and governance characteristics. This process can reveal structural differences between countries, especially between developed and emerging economies.

Step 2: Key Differences in ESG Ratings

Little Correlation between ESG Risk and Credit Ratings: There is some correlation, but not enough to negate the importance of ESG factors.

Similar Levels of ESG Integration: ESG integration in sovereign debt is generally not as advanced as in listed equities and corporate debt.

Structural Differences: Emerging countries often have lower ESG ratings due to governance issues, environmental challenges, and social factors compared to developed economies.

Step 3: Verification with ESG Investing References

ESG ratings for emerging countries are typically lower due to various structural challenges, which affect their overall ESG scores: "Emerging economies tend to have lower ESG ratings compared to developed countries, reflecting ongoing governance, environmental, and social issues"​​​​.

Conclusion: ESG ratings tend to be structurally lower for emerging countries relative to developed economies.

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