January 20, 2022


Given the potentially growing economic and fiscal impacts of climate-related physical and transition risks, and growing demand from investors for information on these risks, credit rating agencies (CRAs) have taken steps to better integrate these risks into sovereign credit ratings in the context of their mandate. These ratings can impact countries’ borrowing costs.

Ministries of Finance (MoFs) and Debt Management Offices (DMOs) are increasingly being tasked with managing climate change as part of their economic and financial policies and communicating effectively to key market actors – including CRAs and sovereign bond investors – actions they are taking to develop resilience and transition their economies to net-zero models. Countries are taking different approaches to managing physical and transition risks and communicating this information to market actors, depending on the country context. In addition, countries are increasingly issuing green bonds as part of their strategies to meet their climate targets.

In this stakeholder dialogue, Coalition members learned about the approaches of CRAs in assessing climate-related risks. The dialogue supports the work of both Helsinki Principle 5 (mobilizing finance and greening financial systems) and Principle 4 (economic policies and public financial management). At the start of the session, Dieter Wang (Sustainable Finance Specialist, World Bank) provided an overview of the current backdrop of how climate and other ESG criteria are being integrated into sovereign credit ratings, drawing on the findings of a new World Bank report, Credit Worthy: ESG Factors and Sovereign Credit Ratings. The presentation highlighted several recommendations for how sovereign credit ratings could better reflect credit material ESG factors. These included better reflecting a country’s natural assets as well as risks and opportunities related to the low carbon transition in sovereign credit rating assessments.

Next, representatives from Moody’s (Marie Diron, Managing Director of Sovereign Risk, Moody’s Investor Services) and S&P (Joydeep Mukherji, Sector Lead for Sovereign Ratings in the Americas and ESG, S&P) presented on how each of their agencies is integrating climate-related criteria into their credit ratings – including how they are approaching the low-carbon transition and stranded assets. Following their remarks, Maximilian Abt (Credit Risk Management Officer, Credit and Climate Risk Department, Climate-related and Environmental Risks Unit, European Investment Bank) presented the EIB’s views on and approach to this issue. Discussants from Ireland and Indonesia responded and shared their respective experiences communicating climate-related information to CRAs and sovereign bond investors. They also discussed challenges associated with the timeline of credit rating assessments and the timeline to transition to a net-zero economy. Below is an image from the World Bank report that illustrates this time horizon discrepancy.


Participants engaged in a dynamic Q&A session moderated by Bryan Gurhy (Senior Financial Sector Specialist, World Bank). In response to questions about whether environmental criteria could be better integrated into credit ratings, rating agency representatives acknowledged that their understanding of climate criteria and the relationships between environmental, social, and governance factors is continually evolving. The representatives shared that while more data on environmental factors is needed, they are also working with existing data and tools to improve their predictions about how climate change and the zero-carbon transition are likely to play out in each country. The CRA representatives explained that they engage with sovereigns in order to understand country transition strategies and assess government capacity to implement the country’s strategy. The representatives emphasized their view that ESG is so deeply integrated into the credit rating assessment of a sovereign that it cannot be separated out as a stand-alone rating.

Pekka Moren (Finnish Co-Chair Sherpa) thanked all the presenters for their informative presentations and acknowledged the importance of this topic for the Coalition across the Helsinki Principles. He highlighted the need for follow-up work on this topic, including at the Ministerial level and in the context of mainstreaming climate into economic and financial policies. Managing the economic and fiscal impacts of the transition, including borrowing costs, is a key concern of Finance Ministers.