Global environment, social and governance (ESG) scores have fallen for a second year in a row after a decade of continued improvement, according to analysis from abrdn’s Research Institute’s annual Global Macro ESG Index.
The index, which scores 135 countries based on 20 UN-aligned ESG indicators, found that asset managers struggle to evidence ESG considerations when taking positions.
It noted that the lower scores were largely driven by a loss of freedom of movement due to Covid restrictions in tandem with a decline in life expectancy, employment and social equality.
Breaking it down, environmental scores rose slightly during 2022, including those related to global carbon emissions intensity. However, overall they were still far off complying with the Paris Agreement.
Political and governance factors saw the biggest and most consistent declines, a trend which has been ongoing since the index began in 2012.
The group said that over the last decade, the world has become “less democratic and less well-governed, as greater authoritarianism, populistic politics and political repression have taken hold across both the developed and developing world”.
In terms of countries, Denmark led the index with the highest political and governance score, followed by its Scandinavian peers Sweden and Finland.
The UK’s performance across several indicators fared less well with lower scores for freedom of expression and from violence, civil society participation and civil liberties.
“We are now in the ninth consecutive year of falling democracy and governance, according to the indicators used by our index,” said Jeremy Lawson, chief economist at abrdn.
He added, “Since the onset of the Covid pandemic, all global ESG indicators have declined. It remains to be seen whether the lifting of Covid restrictions and recent regime changes in countries like the US and Brazil will make a difference.
One important aim of our Global Macro ESG Index is to grow the understanding of how sustainability-related factors are fundamental for a country’s growth and development. The very specific measures we have used make it easy for investors to see what can be improved and where, as well as what is changing.
This includes the way that foreign and domestic conflicts can dramatically alter the risk profile of particular countries, as has been the case with Russia over the past year.”
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