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June 26, 2003
U.S. Drops in Country Sustainability Ratings
    by William Baue

The United States fell eight places in Oekom Research's Country Rating Report this year, mirroring its poor performance on other similar country sustainability ratings.


Many socially responsible investors consider the social and environmental performance behind fixed income investments when making decisions, and that includes government bonds. A Munich-based research firm, Oekom Research, recently published its latest sustainability rating of developed countries, and the U.S. placed in the bottom 20 percent. U.S. policies such as the "Patriot Act," along with the country's environmental foot-dragging and other factors, prompted Oekom to demote the U.S. from 17th to 25th rank in this year's Country Rating Report.

Oekom's country rating, which it released earlier this week, assesses 30 Organisation for Economic Cooperation and Development (OECD) countries and the Russian Federation. The U.S. scored 67.5 percent on the rating, while top-ranking Norway scored 82.02 percent, and the Russian Federation brought up the rear with a 49.19 percent score. The rating applies 150 social and environmental indicators, including such in-depth issues as "political and other extrajudicial execution."

"The US is the only country worldwide which has been convicted of terrorism (concerning the military and paramilitary activities in and against Nicaragua) by the International Court of Justice," states the report in a finding attributed to original Oekom research.

Zurich Cantonal Bank (ZKB) published a similar ratings report of OECD countries in February 2002 entitled Sustainability Rating for Countries. ZKB ranked the U.S. dead last out of the 30 OECD countries. The U.S. received an environmental score of 0 and a social score of 6.58 (on a 1 to 10 scale). ZKB bases its country ratings on 20 social and 20 environmental indicators.

"The effect [of sustainability ratings] on countries will never be as direct as with the ratings on companies," ZKB's Sabine Doebeli told SocialFunds.com. Mr. Doebeli is head of environmental and social research at ZKB. "But the fact that such ratings exist increases the discussion on fair and reasonable criteria to measure the sustainability of countries."

The ZKB report points to the 2001 Environmental Sustainability Index (ESI), prepared for the World Economic Forum's Global Leaders for Tomorrow Environment Task Force by Yale and Columbia Universities, as a seminal work in environmental rating. The 2002 ESI, which ranked the U.S. 45th with a score of 53.2 out of 100, evaluated 142 countries on 20 environmental (but no social) indicators.

"Our country rating strives for an as comprehensive and representative picture of the sustainability situation of a country as possible," said Matthias Boenning, Oekom's head of research, who authored the country ratings report. "To our knowledge, the number of more than 150 indicators assessed is quite unique."

Reductions in civil liberties in the wake of September 11 accounted for much of the decline in the social ranking of the U.S. to 27th place, with a social rating of 50 percent. The Bush Administration's intransigent opposition to ratifying basic international environmental treaties such as the Kyoto Protocol, the Convention on Biological Diversity, and the Protocol on Biosafety accounted for its lower environmental rating. It ranked 22nd with an environmental rating of 50 percent.

While the various agencies rated the U.S. slightly differently, it ranked relatively low on all of those examined here considering its political and economic prominence globally. On the upper end of the spectrum, the ratings achieved greater agreement. Norway and Sweden placed in the top 3 in the country rating reports from Oekom, ZKB, and ESI.

"Due to the nature of the sustainability concept on the one hand and the respective situation within the countries assessed on the other hand, it would be surprising if different rating concepts lead to totally different results," Mr Boenning told SocialFunds.com. "This is not the case."

"However, each concept has an individual focus and investors have to choose which one fits best," he added.

 

 
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