The Social Issue of ESG Analysis

Abstract

This report studies the issue of ESG analysis and the multi-faceted approaches of measuring and assessing the dimension. After reviewing the huge array of literature on inequalities, our analysis focuses on the main social which include economic, health, gender and education aspects as the predictors of structural inequality. Moreover, we compare the risk with the environmental risk to emphasize their relative interconnectedness. An important challenge concerns the measurement puzzle of the pillars, since there are many conceptual and empirical metrics to measure the risk at country and corporate levels. Nevertheless, we observe an existing gap between the two fields of analysis, implying that some coherency differences may exist between macro-economic and micro-economic approaches of welfare analysis. Finally, the last section of this report is dedicated to the quantitative analysis of the impact of inequalities on government bond yield spread. In particular, we test four variables: (1) Gini index of income inequality, (2) universal health coverage, (3) women's economic participation and opportunity, and (4) access to primary education. Using a panel regression model, we found a statistically significant relationship between the Gini index and the cost of borrowing of OECD members between 2015 and 2018. The relationship is no more significant once sovereign credit ratings are included in the regression though. From this result, we split the analysis between the investment grade (IG) category and the high yield (HY) category. We finally confirm the relationship between the two variables for the IG sovereign bond category while we cannot conclude on the relationship regarding the HY category. Overall, the variables related to the health, gender and education aspect of the S pillar are not integrated in sovereign ESG, either in the pricing of the sovereign bonds or in the monitoring of the sovereign risk.