Ashmore’s chosen method of importing ESG considerations efficiently into our investment processes is based substantially on our own rigorous research (country visits, research trips, analysis of significant events such as elections) and the ranking of such considerations alongside other key risk and investment criteria (valuations, technical, fundamentals, politics).
As described in last year’s PRI questionnaire, Ashmore Portfolio managers make a forward-looking assessment of ESG risks, and the likely impact on sovereign and quasi-sovereign bond prices (both External Debt and Local Currency Debt) should that risk materialise. Historical data on relevant ESG factors may be reviewed. However, this data tends to be infrequent and is of limited use in forward looking assessments. More important are the findings from Ashmore’s own investment teams from frequent country visits and discussions with policy makers. The risk assessment is therefore mainly qualitative in nature and captured in scores of 1, 2, 3 for low, medium, and high risk. The impact assessment, similarly using scores of 1, 2, 3 for low, medium and high impact on bond prices, is also mainly qualitative in nature. While for some ESG factors, such as a particular environmental disaster, the likely economic costs can be calculated; the actual risk to the country’s ability and willingness to pay its debt, and the impact on bond prices, is not a straightforward conclusion from such economic costs. This has to be assessed based on Ashmore’s own assessment of the likely reaction of policy makers. These assessments are done ad-hoc whenever new information become available (for instance following a research trip), and in a formal meeting once a quarter for all 70+ countries in which Ashmore invests. The Country Risk Scores are discussed in every weekly Fixed Income Investment Committee meeting. These are a direct input, among others, in investment decision-making.
Ashmore has now formally introduced a quarterly review of the following data, to provide context for the scoring methodology and ensure portfolio managers take the latest available data into account when they make their assessments. The data sets they review are:
Environment: - ND Gain Index by Notre Dame University
- CO2 Consumption per capita by The Global Carbon Project
Social: - Human Development Index by the UN
- Index of Economic Freedom by Heritage Foundation
Governance: - Corruption Perception Index by Transparency International
- Democracy Index by the Economist Intelligence Unit
- Government Effectiveness Index by World Bank