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March 04, 2002
Which Government Bonds Are Appropriate for Sustainable Investors?
by William Baue
Oekom Research recently conducted a study that evaluates the sustainability of governments that
issue bonds popular with investors.
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In order for institutions to implement sustainability investing, they need information about the
social and environmental performance of potential investments. With regard to picking stocks,
there are a number of sources for research on corporate social responsibility. Information on the
social and environmental policies and performance of national governments, however, is more
scattered and scarce, making social investors' bond choices more difficult.
In
response to demand from its institutional clients, the Munich-based social and environmental rating
agency Oekom Research AG
conducted a study of 30 OECD
(Organisation for Economic Co-operation and Development) countries and Russia. The Country Rating,
released in January, assessed the social and environmental performance of national governments.
"There are already existing systems for financial ratings, like Moody's and Standard &
Poor's," explained economist Matthias Bönning, head of research at Oekom.
Oekom's Country
Rating uses 130 indicators to paint an overall picture of countries' social and environmental
records. In the social rating section, for example, Oekom assessed support for human rights by
examining a given government's track record and policies regarding promoting equal opportunities
for all people.
Oekom gathered its information from a number of diverse sources such as
Amnesty International, the Financial Action Task Force on Money Laundering, and the World Health
Organization.
The United States placed in the middle of the pack, ranking 17th out of
31. The U.S. government scored well on issues such as freedom of the press and biodiversity.
However, it fared poorly on some other points because of incidents of excessive police violence
toward African-Americans, the continuing use of the death penalty, limitations on trade union
freedoms, overdue payments to the United Nations, excessive water consumption and waste production,
and refusal to ratify the Kyoto Protocol.
Germany did just a little better, placing
12th due to its educational shortcomings, high unemployment, low species diversity, and small
proportion of protected natural areas. Russia, which has a horrendous record of human rights
violations, ranked at the bottom of the list. On the other end, Scandinavian countries placed in
the top four spots.
"The modern industrial nations of Scandinavia already indicate what a
society equipped for the future might look like," said Mr. Bönning.
Norway, which placed
first, maintains a low national debt and low unemployment. It allocated 0.9 percent of its gross
domestic product (GDP) to aid developing countries. The United States, on the otherhand, spent a
mere 0.1 percent of its GDP on such aid.
Oekom's Country Rating did not consider
developing countries, mostly because its clients invest more in the developed nations surveyed.
"But the system is open to these countries, so it wouldn't be a problem [to analyze them],
and it will be done in the future," said Mr. Bönning.
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