Sovereign rating methodologies, ESG and climate change risk: an overview

45 Pages Posted: 10 May 2021

See all articles by Denitsa Angelova

Denitsa Angelova

CMCC@Ca'Foscari

Francesco Bosello

University of Milan - Department of Economics, Business and Statistics; CMCC - Centro Euro-Mediterraneo sui Cambiamenti Climatici

Andrea Bigano

RFF-CMCC European Institute on Economics and the Environment; CMCC - Centro Euro-Mediterraneo sui Cambiamenti Climatici; Ca' Foscari University of Venice

Silvio Giove

Ca Foscari University of Venice - Dipartimento di Economia

Date Written: May 4, 2021

Abstract

We review the sovereign credit rating methodologies of three credit rating agencies (Moody’s, S&P and Fitch) and analyze how they currently accommodate climate change risk and ESG considerations. We elaborate on the differences between the three rating methodologies and critically evaluate their suitability and limitations. We propose lines of improvement with respect to the indicator selection, normalization, aggregation and weighting procedures as well as the use of the sovereign rating indicator in connection with climate change scenarios.

Keywords: Climate risk, sovereign risk, sovereign credit, rating agency

JEL Classification: G24, H63, Q54

Suggested Citation

Angelova, Denitsa and Bosello, Francesco and Bigano, Andrea and Giove, Silvio, Sovereign rating methodologies, ESG and climate change risk: an overview (May 4, 2021). Available at SSRN: https://ssrn.com/abstract=3841948 or http://dx.doi.org/10.2139/ssrn.3841948

Denitsa Angelova (Contact Author)

CMCC@Ca'Foscari ( email )

Porta dell'Innovazione Building - 2nd Floor
Via della Libertà, 12
Venice, Veneto 30175
Italy

Francesco Bosello

University of Milan - Department of Economics, Business and Statistics

Via Festa del Perdono, 7
Milan, 20122
Italy

CMCC - Centro Euro-Mediterraneo sui Cambiamenti Climatici

via Augusto Imperatore, 16
Lecce, I-73100
Italy

Andrea Bigano

RFF-CMCC European Institute on Economics and the Environment ( email )

Via Bergognone, 34
Milan, 20144
Italy

CMCC - Centro Euro-Mediterraneo sui Cambiamenti Climatici ( email )

via Augusto Imperatore, 16
Lecce, I-73100
Italy

Ca' Foscari University of Venice ( email )

Dorsoduro 3246
Venice, Veneto 30123
Italy

Silvio Giove

Ca Foscari University of Venice - Dipartimento di Economia ( email )

Cannaregio 873
Venice, 30121
Italy

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