A new SDG scoring method aligns government bond portfolios with sustainable goals, guiding capital to nations with strong SDG policies. It addresses income bias in sovereign ESG ratings and offers a practical framework for impactful investing.
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Abstract
Government bond investors can help close the financing gap for the Sustainable Development Goals by directing capital toward governments with strong, yet underfunded, sustainability policies. We introduce a practical method to implement this approach, with the potential to improve the lives of 2.1 billion people, primarily in low- and middle-income countries. The novelty of our approach lies in prioritizing investments where each dollar has the highest potential for sustainability improvement, rather than concentrating portfolios in already well-performing, high-income countries with low interest rates. This reorientation offers a more impactful path for sustainable bond investing. While our focus is on sustainability impact, we acknowledge that investors must also consider expected risk and reward when constructing portfolios.