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Understanding Sovereign ESG

Hugo Scott-Gall: On today’s podcast, we are discussing all things related to sovereign ESG with our guest, Teal Emery. Teal is the founder of Teal Insights, a boutique research consultancy focusing on sustainability issues in sovereign debt markets. He previously worked as an emerging markets investment research analyst for Morgan Stanley Investment Management.

After leaving there, he began working as a consultant at the World Bank on analysis and thought leadership, related to aligning sovereign debt investing with sustainability goals. Also with me is our own Yvette Babb, portfolio manager in William Blair’s Emerging Markets Debt team. Thank you both for being here.

Teal Emery: Thank you, Hugo.

Yvette Babb: Thanks for having me, Hugo.

Hugo Scott-Gall: Not a problem. So, we’ve got a lot to talk about, but we need to start I think with the basics. What do we mean by sovereign ESG. Teal, can you tell us?

Teal Emery: ESG investing is a framework that started in the equity markets and really grew in the equity markets. So, what sovereign ESG winds up referring to is looking at sovereign fixed income and other places where we’re looking at sovereign governments as opposed to corporates, but that should be looked at slightly differently. There are a number of reasons why that should be the case. One is that governments are generally different than companies. They’re different in size, they’re different in scope, and different in motivations.

And therefore, a lot of the empirical findings and the mechanisms of impact that people have talked about in the equity markets don’t necessarily apply directly to sovereign fixed income. Secondly, ESG, what does that actually mean in the context of sovereigns as opposed to corporates? For corporate, governance may mean how Rio Tinto deals with its board members and how it deals with minority shareholders. With sovereign ESG, you’re looking at how does Brazil deal with its population? Democracy, government effectiveness, other things of that sort that are quite a bit more complicated.

Hugo Scott-Gall: What would a sovereign ESG rating be trying to achieve? How is that different from a credit rating, for example? So, again, back to you Teal. But then, Yvette, I think it would be good to hear your view as well.

Teal Emery: Sure. And that’s actually what a lot of the work that I wound up doing at the World Bank started to look at. And what I had seen as an investment research analyst that was trying to implement sovereign ESG, it seemed to me that there wasn’t a very clear idea of what exactly we meant by sovereign ESG performance. At the World Bank, I wound up organizing a study that looked at seven of the leading data providers that were providing sovereign ESG scores. And both talking with them, looking at their methodologies, as well as doing quantitative research about how much they actually agreed on and what they defined as good sovereign ESG performance or not.

And what we found is, that they were really responding to a market demand. UNPRI, which is a UN related advocacy organization that promotes responsible investment, had been telling people to incorporate financially material ESG factors into their investment processes. A lot of these data companies responded to that. So really, at least so far, what these ratings have been trying to capture is, financially material factors that affect a country’s willingness or ability to pay, that come from environmental, social, and governance factors. And I think that that’s where the conversation has to start, because that’s really, basically just good sovereign credit analysis.

So, it’s actually basically trying to capture something very similar to what actual credit ratings are trying to capture. Whereas investor interest is driven both by an interest in pricing these ESG risks, and what are the risks from climate change that could affect a country’s ability to pay its debts. But also, they’re trying to align their investments with their values and with sustainability outcomes. A lot of what I found in my research is that pricing ESG risks as an input, and these material risks may actually make sustainability outcomes worse because these risks seem to be very highly correlated with how wealthy countries are.

Yvette Babb: So, Hugo, I’d just add to that that, from our perspective and, most certainly as a portfolio manager, what we seek to do with ESG integration is really understand the non-financial factors that inform a country’s willingness and ability to repay its debt. And so, I would argue that many of the things that are now being coined, sovereign ESG analysis, were indeed as Teal mentioned, already a part of what is good sovereign research. And understanding the credit really well from a bottom-up perspective. So, the social DNA of a country, understanding the political and institutional system, the government policies, those are all part of what has been in my view, a long-standing track record of sovereign risk research.

I guess the element of what’s changing, driven by public opinion, normative values is the shift toward social and environmental considerations and the externalities of country policies, in light of climate change risks, public policy focus, as well as, meaningful international agreements, such as those defined under the sustainable development goals and the Paris Agreement.

And so, trying to understand the degree to which environmental and social factors are a part of sovereign’s development over the longer term in the specific context of those agreements is also part of what is becoming an increasing focus on indeed, social and environmental outcomes. So, what started as clearly a risk mitigation tool is now taking into consideration the objectives of social and environmental outcomes in themselves.

Hugo Scott-Gall: So, Teal made a very interesting point there which is, it seems to me, someone who comes from the equity universe that the bigger the company, the more resources it has, the better-quality data it publishes and there is some correlation between ESG ratings, some ESG scores by some providers versus size. So, you get some sort of market cap versus ESG score correlation. Maybe a bit less than it was, but it was still there. So Teal, you said look, that the reasonable correlation between an income level of a country and its risks.

And so, I think that’s a very important point which is, just because a country has a low level of income per capita, doesn’t necessarily mean it’s not capable of ESG improvement in time, whatever ESG improvement means. So, how do you think about that and adjust for that?

And I suppose what I’m really getting at and again, something I want to hear your opinion as well Yvette, which is this idea of current score versus ability to change, potential for change. And those judgements around potential to change momentum are really, really important I would’ve thought from any attempt to successfully macro invest. So, you have a go at that first Teal and then I’ll come to you, Yvette.

Teal Emery: I absolutely agree on the emphasis on momentum. One of the key things that came out of these reports was really trying to say hey, it’s much better to look at a country’s ESG momentum, versus its score. It’s a way of getting past this ingrained income bias. I think that one of the real challenges, and I saw this as an investor, (I created the first sovereign ESG framework for Morgan Stanley Investment Management) was that it’s very difficult to actually quantify that momentum. And part of that has to do with going down and looking at where the actual base data is.

For sovereign ESG scores, one of the things that we found was that really, most of these providers are using data that comes from the World Bank, that comes from the IMF, from the UN. Other multi-lateral organizations or large NGOs. So, it’s publicly available data and the challenge is that there are very large gaps and lags in this data. I did an analysis looking at the World Bank’s sovereign ESG data portal and found the median lag for data for environment was five years. That means in 2021, if you’re lucky, if you’re looking at 2016 data. For social and governance data, it’s a little bit more refreshed, but that still is three years.

It makes it a little difficult because basically, when you’re investing and looking at that, it makes it challenging to use hard data to help inform those momentum decisions and that’s one of the reasons why it will, at least for the reasonable future, probably still also include analyst judgement and active insight for people that are actually looking at countries on a day in, day out basis. In the medium and long term, there are other options to help with this, looking at big data sources that use text analysis. That use geospatial analysis to create hard data points at a higher time frequency. But for now, we really have to also rely upon a lot of soft judgement.

Yvette Babb: And I definitely echo that and that these are markets, within the EM space in particular, where we’re trying to understand sovereign credit risk on both financial and non-financial metrics. And now, if we speak about resource availability and the degree to which countries are able to demonstrate their credit worthiness, we have a lack of resources when it comes to national statistics, survey data, even on the financial side. So, let alone, the ability to generate large amounts of data on the social side and most certainly, on the environmental side.

And as you will know, looking at equities, there is a great amount of work that is being done, to bring to light, the Scope 1, 2, and 3 emissions for companies in the developed markets. For countries like Nigeria, they are still resource constrained in their ability to generate national accounts data. So, speaking to the national statistician in Nigeria, he is struggling to get 12,000 surveys answered by national companies to be able to say how fast their economy grew. Let alone, what the emissions are that’re generated from the industry within their geographical boundaries.

So, there is most certainly a difficulty in being able to generate ESG metrics that are timely and that are consistent and are most certainly updated frequently enough for us to be able to align our investment decisions directly on metrics alone. To Teal’s point, this is most certainly a scope where I think the focus needs to be discretionary, in order to allow for individuals that’re very focused on the array of metrics that inform an individual country’s ability and willingness to pay. But also, the degree to that person, so that they can assess the environmental and social outcomes that that national government is working towards.

And so, in our view, it’s the integration of statistic measures, but most certainly, with a very large discretionary overlay to be able to understand the very complex array of instruments or factors that will inform a sovereign’s ability to repay its debt, and therefore the relationship between risk and return in the sovereign. But also, the degree to which those complex myriad of factors would inform environmental and social outcomes at a national level.

Hugo Scott-Gall: So, I’m very interested in the idea of context. Different things matter at different times in a country’s evolution. And your answer there Yvette, you talked quite a lot about risks and managing risks. But I would assume that you both have a template, a mental model for the conditions for growth, the patterns, the common characteristics around successful countries.

I’m just wondering how you use contextual ESG type analysis, for a country like this, at this stage of its growth evolution, at this level of income per capita. These are the things I would look for and these are the necessary conditions for growth. And those conditions for growth have quite a bit I would imagine, overlap with ESG. So, how do you think about it on the growth side, Yvette?

Yvette Babb: I think you’re spot on in terms of identifying things that we view as necessary, but clearly not sufficient. And the combinations of factors can vary by countries. But what we’ve clearly found, and this is why I say, sovereign core analysis has started with things that’re now coined under ESG. But it’s long recognized that a strong institutional framework and government effectiveness are key to ensuring long-term growth in economies. Most certainly at the onset of the development. Without that, there is no ability to generate sustainable long-term growth, but most certainly, a limited ability to generate better social and environmental outcomes.

So, there is clearly a need for a strong institutional framework as the premise for a growth model that can prove to be enduring. Many of the factors that’re now encompassed under S are having a competitive labor force. And so, a socio-economic environment that will allow for a labor force that is healthy and enjoying sufficient education to be able to allow for a transformation of the economy beyond the primary sectors. And most certainly again, sufficient or necessary, but not in many cases, sufficient.

So, external competitiveness and having both the institutional, as well as the social conditions in place, as well as the legislative conditions in place for an economy to prove competitive on a global scale is again, necessary but not sufficient. So, there is most certainly almost a pyramid of needs that one could argue that a county goes through in improving environmental and social outcomes. Whereby, a country like Nigeria is still seeking to meet the basic needs of its population.

And so, it still needs to move very much up that scale of social outcomes and is very focused on very basic things, such as providing shelter, electricity, water, and sanitation for its population. And understanding those dynamics in the context of the stability of its institutional framework. And in the context of its ability to generate foreign exchange and sanguine fiscal policies, is part of unpacking the myriad of factors that apply in very individual contexts.

Teal Emery: Yeah. I definitely agree with a lot of what Yvette is saying there. And I think just to add something to this, I think it helps to put it in the context of what asset owners are doing and why this matters for pension funds and other people who are the ultimate investors. They’re managing money for the long term. They have to pay out beneficiaries over a long-term basis. And I think particularly with the rise in climate risks that’re becoming much more evident every year, they see that this will matter in the long term, and it probably will matter more in the future than it has in the past.

So, in terms of looking at resilience, part of the theme that we’ve been talking about, of ESG basically being an extension of good sovereign credit analysis, is extending the remit of analysis to looking at things like natural capital, for example. The World Bank has a project, along with a number of other institutions, to create national accounts that include both the normal parts of what you see in GDP, etcetera, but also accounting for natural capital and human capital and other areas of that sort.

That can be quite helpful because it gives a framework for actually measuring things that matter. You can raise GDP by using natural resources, but that’s going to be a depletion potentially of natural capital. And having some accounting framework to be able to look at that allows us to actually look at growth, and economic growth, within a wider context that I think will be useful and I think will be more helpful going forward.

Yvette Babb: I mean, just to drive that point home in the example that I gave earlier for Nigeria. Nigeria is an oil exporting country. They currently have the capacity to produce around 2.2 million barrels of oil per day. Under the notion of climate action and the Paris Accord and de-carbonization of financial portfolios across Europe, there is a question mark as to the long-term potential of Nigeria. In the context of being a hydrocarbon exporter and needing to attract new investment to sustain that level of production of oil.

So, their growth model moving forward will most certainly need to look very different than what their growth models look like over the past four decades. And their growth model moving forward will need to have a mitigation plan in place for diversification away from oil arguably in the context of a more sustainable growth model moving forward. And how and when that pans out is now increasing the focus of the macro-climate forecast that we take into consideration when considering the long-term credit profile of Nigeria.

Hugo Scott-Gall: That makes a lot of sense. And I mean, you use Nigeria, but there must be quite a few countries, well I know there are quite a few countries whose source of revenue and source of wealth comes from things which may be judged bad by others. With that in mind, I just wonder how you assess that countries who are making changes that will benefit either the E, the S, or the G but is it enough to be improving or do you need to score well above an absolute level? So, you can improve the E a bit from where you were, but if you’re still a meaningful net loser, how would you think about that or you can open up governments a little bit but you’re still pretty bad.

So, how do you think about that? Where does it draw a line? I guess I’m asking the same question, which I apologize for this. On emerging countries who may not have that many near term pathways to growth, they may be reliant on low-cost labor and someone’s net advantage could be low-cost labor and to someone else, that looks like labor exploitation. How do you make those judgements around countries which may not have that many avenues to growth and still may score badly through an average lens, but context specific, are making improvements.

Teal Emery: I think if I can take this first. One thing is that, in terms of looking at how we measure these things, we really do have to ask, are we just measuring how wealthy countries are in the first place? And I would say, particularly for the social pillar of a lot of these scores, it’s the most highly correlated with how wealthy countries are. I would say, just to give a number to it, the average aggregate ESG score has a .9 positive correlation with a country’s level of income, that’s very high. So, I think that’s part of it. And I think just to ground this in actual examples, I like to think about Angola, Brazil, and Canada. You take countries from different parts of the spectrum.

Angola is a frontier, sure. They’ve become a fairly significant bond issuer over the last number of years. Brazil, obviously a very large emerging market, is an upper- and middle-income country, and Canada being a wealthy country. I think that going back to the idea that actually framing everything just around ESG risks winds up potentially having perverse consequences. Is that the level of cumulative emissions from high income countries is very high. They also end up having the lowest climate vulnerability. Climate vulnerability and cumulative emissions have a very strong negative correlation, .891.

Which essentially means that the countries that’ve emitted the most carbon historically are also the ones that have the least climate vulnerability and the ones that’ve emitted the least have the most climate vulnerability. And so, then going back to this example, you can look at the cumulative emissions of Canada versus Brazil and Angola. Its emitted 12 times more carbon than Brazil and 37 times more than Angola. And so, I think that particularly when we think about Angola being a country with $7,000.00 per capita GDP, we should have slightly different views on exactly how they are going about adapting what they’re doing.

But I think that there’s still ways that investors who care, both about financial returns and about sustainability outcomes can look for ways to have a just transition that helps compensate these countries and helps them build climate resilience. And helps them build towards other less carbon intensive ways of growing but doesn’t do that at the sake of forsaking their populations.

Yvette Babb: Hugo, if I may refer to your question, just in terms of, are there levels at which I guess you’re arguing that countries are unlikely to succeed. I think, yes. There is a combination of levels on both macro-economic fundamentals, socio-economic circumstances, and governance scores that could imply a degree to which a country is almost certain to fail. And I think we’ve seen the number of examples on this front where countries have all but close to collapsed. Lebanon, for instance, being one of the most recent examples. So, as a sovereign debt investor, we then need to ask ourselves, adequately invested, adequately rewarded for the risk that you’re taking and investing in a country like that.

And so, in the context of Lebanon, the prices of bonds fell to the low teens. And so, clearly reflected, the degree to which the country was dysfunctional. And unlikely to, in the short term at least, in the context of a collapsed government and large number of external shocks, succeed in the short term. I think in the context of ESG, there’s the additional layer of indeed, exclusions. At what point do you, for normative screening purposes or ethical reasons, choose to not invest in a country? And what are the considerations, what values inform that decision? And I think asset owners have a view in some cases, as to the degree to which they are not willing to invest in countries.

And this can be on the basis of perceived human rights violations. The imposition of the death penalty. This can be on the basis of, I mean, in quasi-sovereign case, the exposure to controversial activities. I think for countries, that argument is more difficult to argue. That you choose not to invest in countries because the economic growth model, and/or the social levels are too low level to generate growth, right? I think unlike companies, countries cannot fail or disappear, i.e., collapse. And so, we have a model that is premised on exclusions. Exclusions of companies and quasi-sovereigns that are violators of the UN global compact.

And I think depriving countries on the premise of their level of development, as Teal alluded to, by virtue of the size of the GDP is in my view, not an adequate argument to exclude countries from the capital market. It is in no way serving in sustainability objective and is most certainly in my view, not reflective of what was the intention of a greater focus on social and environmental outcomes.

Teal Emery: Just to add something to that. The academic literature is fairly clear that divestment doesn’t actually have any impact. We’re seeing this now in other areas, in terms of oil company stocks or other things of that sort. But in terms of countries and for equities, the place where there’s empirical evidence that investors can actually help move sustainability outcomes is through engagement. I would say that engagement, particularly with capital constrained issuers, which in this case you can read as, much more lower income countries, is more likely to work than anything else in the toolkit that investors have to actually influence outcomes.

I think that over the past couple of years, this has really moved along a lot. When I was an analyst, meeting with finance ministers or central bank governors a number of years ago, you’d then bring up an environmental question to somebody at a debt management office and they’d be like, yeah, I’m only here to figure out whether we’re issuing at 10 years or 30 years. And it wasn’t a very helpful conversation. I think over the past couple of years, that has changed a lot, particularly as sovereign issuers have seen the shift on their side. Another one of the projects I worked on at the World Bank was with the former Chilean Finance Minister, Filipe Larrain.

And we went through what Chile has done, in terms of changing their issuance program to be aligned with their nationally determined contributions. As well as what they’re doing in terms of engagement. Not only with the DMO, but with the other relevant organizations in the government. There’s a lot still to come in terms of what makes the most effective engagement. But I think it’s making progress and it’s probably one of the more promising solutions.

Hugo Scott-Gall: Yeah, that’s very interesting. I guess you’re talking about feedback loops. And certainly there’s a school of thought with, I think some credibility behind it, that certainly in the equity markets they’re seeing some discrimination when it comes to capital, you’re seeing companies, their own behavior being influenced by what is said about them in terms of ESG. So, you could argue that it is change of behavior and it is maybe potentially, there’s an argument in here, I wouldn’t want to report it as a fact, that there is a changing cost to capital. A changing cost of capital map, or variability of capital the company is based on how they are doing on ESG and things.

So, what’s different in equity is of course, there are lots of different stocks you could buy in any one day. There aren’t that many different ways of investing in a country from a fixed income point of view. Some countries have limited sovereign bonds, never mind corporate credit. So, we talked a bit about the feedback loop, but do you see that increasing? Do you see perhaps, with the evolution of sovereign ESG scores, commentary, explanations having some real impact? Or as you just said, Teal, it has to come through engagement, but engagement is sometimes logistically very difficult for locational reasons and access reasons.

So, the assertion in my question is that, focus on ESG has led to changes in corporate strategy, corporate behavior, corporate emphasis and maybe as far even as cost to capital, access to capital. Do you see similar channels, feedback channels at work, for sovereign ESG eventually or we’ll never get there?

Teal Emery: I think that there can be, and I think that one part of it is the realization that looking at ESG risk levels in sovereign debt may not actually lead to the outcomes that people want and that it’s much more effective to look at momentum. And as we do that, if we’re just looking at levels and if the level of ESG score is very highly determined, simply by how wealthy countries are, there’s not really much in the way of incentive structure for countries to improve. If the market, if indices, if regulators, other folks start looking more at momentum, then it actually incentivizes improvement on the margin and that’s what we want to be doing.

So, I think that we’re starting to see that and you’re seeing this with countries coming together. I obviously am more familiar with the Chilean case. I think the Columbians are doing a lot. Uruguay also is moving forward in this direction where they’re starting to take sustainability planning and their debt issuance and other things into one perspective. And I think that’s quite positive, and I think that moves us forward.

Yvette Babb: I would just add that we’re seeing that clearly in the way in which we engage with DMOs across the emerging market world, whereby there is specific attention paid to ESG in the primary market, but also follow up engagements with us as investors. We’re seeing that in the change in the type of issuance that countries are doing. Introducing green bond frameworks, as well as other labeled instruments. So, that space has clearly been dominated by DM and by corporates, rather than by sovereigns.

But we’re seeing an increasing number of EM countries introducing labeled instruments, specifically to allocate part of their public budget towards sustainability themes. And so, we’ve seen up to 11 countries now in EM that are issuing, most recently Serbia. We have a number of single fee issuers. We have a utility company in Pakistan. Egypt was the first African country to debut in this space. We have Benin issuing sustainability bonds. So, it’s most certainly informing the type of disclosures that countries are embarking on. So, there’s that feedback loop where countries are producing more ESG information and engaging with investors.

And also, looking at changing, as Teal worked on in the case of Chile, but increasing number of countries looking at the types of issuance they can do to complement their security opportunity centers, as you described as being quite limited, but most certainly growing in its size as well as its diversity.

Teal Emery: I think just one last comment on this would be, just talking about cost of capital. I don’t know that we’ve seen a very significant change in the cost of capital in terms of sovereigns. But I think that it’s worth noting. One, this is a place where sovereigns are slightly different than corporates. Sovereigns do care about their cost of capital, but a few basis points probably isn’t going to sway what a country wants to do, if it has domestic stakeholders that think otherwise.

But secondly, the place where this is most likely to be effective, the cost of capital, incentivizing better behavior in terms of environmental, social, and governance goals is with capital constrained issuers. It’s with lower income issuers with lower credit ratings.

Hugo Scott-Gall: That makes so much sense. So, I’m conscious of the time here and I think I want to ask you both the same question. Which is, let’s roll forward five years, maybe 10 years, what does sovereign ESG look like and what’s the big driver of change? Has it changed much? And if it has changed, is that really due to change in availability of data which will reveal things and enable comparison? Or is it actually going to be more driven, yes, the data will help, but actually it’s going to be more behavioral, attitudinal, societal change that will drive improvement on these things.

So, do you think we will get to a place where importance of sovereign ESG scores, ratings, whatever you want to call them will rise and that they’ll be more commonly used, and therefore, surely the incentives aren’t giving you the behavior argument. Or is it more on the attitude side that’ll drive big change, the data side? And do you think there will be a big change? So, Teal you get a first and then Yvette, you can have a go.

Teal Emery: I do think that there’s going to be a big change, and I think we’ve already seen it. We have the sovereign ESG 1.0 era that basically was just trying to take this equities framework and apply it to sovereign fixed income using the data and the other limitations available. Part of it is that these frameworks, even though sovereigns are very different than corporates, as an asset manager, you have multi-asset portfolios, and you have to have these things play well together. And there’s always going to be some sort of trade off for that broad applicability.

In terms of what we see going forward, I think first there has been a realization that purely risk-based ESG doesn’t necessarily make the world a better place. It may or it may not, but there’s a real question about how much the circles overlap in that Venn diagram. And I think we’ve now come to a place where we’ve started to embrace that these are two separate questions, they’re very valid things. The first is, are we pricing the risks, the financially material risks that come from these environmental, social, and governance factors? So, that’s basically this broadening of sovereign credit analysis that Yvette and I’ve been talking about. And that’s quite challenging.

Some of that’s going to be helped by better data, by data from geospatial data that will give us more accurate and up to date environmental data and other things that will allow us to assess social and governance risks in more real time manner, using harder data. But some of it, you still have to figure out, what exactly are our goals? What’re we trying to accomplish and what are the tools that we’re trying to use to accomplish that and how effective are they, how can we make them more effective? And I think the place where there’s still a lot of work to be done and that it’s quite challenging is with this portion of aligning people’s investments with their values.

Ultimately, most people are investing, the end investors, many of them are people who are saving for retirements. And in their retirement, there’s two different things that’re going to make their lives better. One is, actually having enough money to retire. So, financial returns are a real thing and ESG and these other frameworks, they’re not philanthropy. But another is that people want to be able to retire in a place where they can breathe the air. Where there’s peace and stability and other things that’re going to be non-financial portions of making their lives better.

We still have a lot of work to do, and I think it will be tough to do that. To help people have transparent options of how to do that. Everybody’s going to have slightly different preferences and needs in terms of what they need financially in their expected returns and what they want to have impact on sustainability outcomes. One of the more challenging other things that we have to do, aside from having better data, is figure out a way to actually measure what the sustainability impact is of investing in sovereign debt. It’s a large part of people’s portfolio. And current ESG scores aren’t trying to measure that, they’re trying to measure financial materiality.

Yvette Babb: So, the world is definitely going to look different in five years when it comes to issue sovereigns, driven by I think, all of the things that you mentioned, Hugo. So, I think there is an aspect to which public opinion is changing and shifting very quickly. That change is happening at different paces across the world. I, myself, am based on the continent in Europe and clearly, there’s been a very sharp shift in public opinion around sustainable investing and a desire to want to invest sustainably. I would hope however that this is done in a conscious way. And some of that is at the moment, being driven by a response from regulators to ensure that is defined to a greater degree.

So, in Europe, sustainable finance disclosure regulation has been crafted with ensuring that sustainable is indeed sustainable when it’s in the marketing labels of funds. And this is to regulate the clarity as to what indeed the objective of these funds are. Versus the norms that the public is seeking to reach in their investment vehicles. So, the final point is indeed, I think that the data needs to catch up to some of those changing norms, i.e., how do we measure the values that our end investors and asset owners are seeking to achieve.

And how do we indeed shape legislation that is not creating any distortions in the market along the way, as it’s moving perhaps at a faster way than ESG data development is at this point in time. I think that it’s a rapidly moving space. I think that it’s moved very fast over the past years, particularly in Europe. We’re seen shifts in other geographies where asset owners are seeing the same shifts, I would argue in their demands and that ends up as having implications on the demands for new investment vehicles and for different changes in the way it’s applied in the EM sovereign space.

And so, I imagine that in five years’ time, that demand in itself will be generating much better data and that those objectives will be much better aligned to the products that are out there.

Hugo Scott-Gall: I want to say think you to you both. Thank you, Teal. Thank you, Yvette, for joining me. Answering most of my basic questions around sovereign ESG, but it was super helpful, super useful, and I think time very well spent. So, thank you both.

Yvette Babb: Thank you, so much. Been great chatting to you.

Teal Emery: Thank you, Hugo.