GLOBAL – Azerbaijan, Belarus, Belize, the Cayman Islands, Ecuador, Iraq, Nigeria, Pakistan, Panama and Venezuela were the countries excluded for high reputation and long-term S&P ratings in Axa Investment Managers' 'Sovereign debt investing: ESG framework and applications' report.

But reputation management is just one of the two ways in which the framework addresses sovereign risk –the other one being an ESG overlay through tilting of the portfolio.

With the ESG overlay, the top ESG underweights for emerging markets are the Philippines, Colombia and Indonesia, followed by China and Russia.

For developed markets, Japan is the largest underweight, largely due to governance issues.

The ESG overlay reduces country exposure to a number of sovereigns with high-quality, long-term ratings such as Singapore, the UK and the US, largely as a result of poor environmental indicators.

Italy receives a slight underweight for its ESG score compared with other developed markets.

The top ESG overweights for emerging markets are Poland and Chile.

For developed markets, Spain tops the list for its better-than-average ESG score relative to developed markets despite a poor S&P long-term rating (BBB-) and gloomy economic prospects.

For the remainder, the ESG overlay gives greater weight to Northern European countries rated AA+ and above that demonstrate strong ESG performance.

The report concluded that investors might find a reputation risk strategy based on negative screening particularly useful for emerging markets since these countries tend to score poorly on governance measures such as control of corruption relative to developed markets.

AXA IM created the report for a corporate pension fund.

Matt Christensen, global head of responsible investment at AXA IM, told IPE: "We are used to seeing interest in ESG from public pension funds. Issues such as sovereign risk and reputation risk can be a door-opener for corporate pension funds to also start looking at ESG."

In other news, nearly 90% of fund managers in inclusive finance report a procedure to integrate environmental issues into their investment decision-making, according to a report by policy and research centre CGAP and the UN-backed PRI Initiative's Principles for Investors in Inclusive Finance (PIIF).

Their investment decision-making takes into account the social performance of investees, but staff incentives – monetary or otherwise – are not always linked to social performance.

The 'PIIF Signatories' Report on Progress' also found that all participants have endorsed the Client Protection Principles, a set of pro-client codes of conduct and practices that together form the minimum standards clients should expect to receive when doing business with a microfinance institution.

The majority report they are incorporating these into their policies and practices.

Most participants' fund managers report a high commitment to investing in microfinance institutions that offer a range of financial services, with just over half collecting data on the proportion of the retail providers in which they invest that provide financial products beyond credit.

On average, 48% provide savings and 44% offer insurance.

But active involvement in corporate governance is mixed, as, on average, equity investors report having board seats with half of their investees.

The report is based on responses of 15 investment manager signatories with assets under management of $6.5bn (€5bn) of the estimated $14bn of foreign capital investment in inclusive finance to the voluntary pilot of the PRI's new Reporting Framework in 2012.

Elsewhere, Korean export-import bank KEXIM has announced the first green bond issue out of Asia.

SEB and Bank of America Merrill Lynch are joint lead managers on KEXIM's $500m green bond issue.

Christopher Flensborg, head of sustainable products and product development at SEB Merchant Banking, said: "KEXIM is an obvious issuer of green bonds, as Korea is selected to host the UN Green Climate Fund and has well-developed environmental laws."
KEXIM's green bond proceeds are earmarked for projects that address the transition to low carbon and climate-resilient growth.
Lastly, Standard Life Investments has published its first-ever annual review of governance and stewardship.

The review aims to provide an insightful and informative account of how the investment manager fulfils its engagement and voting responsibilities, and sets out its views on the changing governance landscape.