An update on our ESG scores

The integration of environmental, social, and governance (ESG) factors into sovereign fixed income investing has been a key focus for Templeton Global Macro, particularly since the introduction of the Templeton Global Macro-ESG Index® in 2018. While the industry typically employs a levels-based approach to ESG scoring, Templeton Global Macro has adopted a momentum-based strategy.

This method evaluates countries based on anticipated progress in ESG indicators over a three-year horizon, informed by government policies and socio-economic trends. This approach can yield surprising outcomes, such as assigning positive momentum scores to emerging markets that are currently weak in governance but are implementing reforms.

The rationale is that these countries, if they achieve their projected momentum, could outperform in the medium term. Templeton Global Macro regularly updates their methodology and scores, with the latest updates based on extensive macro and on-the-ground research conducted in August and September 2024.

The October 2024 publication also explores innovations in green and social financing, highlighting the evolving landscape of sustainable investing.