Rating the Sustainability of States in the Context of the Credit Crisis

Inrate Sustainability Breakfast March 2012

The event was all about the sustainability of states which Inrate assesses with an enhanced and revised methodology. The 12th breakfast held by Inrate was at the same time the biggest breakfast event ever: Around 100 professionals in Zurich and 50 in Geneva coming from the financial, economic and academic world as well as from NGOs, sustainability organizations and the media joined to listen to the presentations. Together with the event, Inrate published the recent Sustainability Matters on the sustainability of states as well as a media text.

Myriam Steinemann, senior analyst at Inrate, presented the methodology of the Inrate country rating. Background of the Inrate assessment is the role of a state which is to enable sustainable development. Institutional framework and necessary conditions regarding human rights, democracy, governance and rule of law, corruption as well armament are preconditions to do so. If they are fulfilled to a certain extent, in addition concrete actions in the human & social as well as the environmental dimension are required to foster sustainable development. Compared to traditional credit ratings, the Inrate sustainability rating is assessing those elements that are essential for the long-term sustainable development and for the society as a whole.

The rating is focusing on ecological and social criteria and, amongst other topics, takes into account the issue of financial stability and financial justice. A country with good or excellent Inrate rating has in most cases a good credit rating (e.g. Austria, Switzerland, and Norway). On the other hand, a good credit rating doesn’t automatically go hand in hand with a good sustainability rating as shows the example of the United States. Therefore, a sustainability rating is excellent complementary information to traditional credit ratings. Being asked for the target group of the sustainability rating, Christoph Müller, Chairman of the Inrate Board of Directors, explained that portfolio managers can use the rating to integrate sustainability aspects in their investment decisions.

After that, Susanne Kundert, Head Sustainability Fixed Income, LGT Capital Management, spoke about the benefits bond investors would gain by integrating sustainability dimensions into their investment process. LGT, a bank privately owned by the Princely Family, is holding an inter-generational perspective and offers a broad range of sustainable investment solutions. LGT is using the Inrate sustainability ratings to select states that show an above-average engagement in the sustainability dimensions. Because of the assessment results, LGT is not invested in Portugal, Greece and the US.

Finally, Dr. Pierre-Alain Bruchez, Senior Economist at the Federal Department of Finance (FDF), presented the report on the long-term perspectives of public finances in Switzerland. Will the various levels of the Swiss public sector be able to pay their bills assuming no policy change? Or will factors such as demographic change and rising health costs lead to funding gaps? In order to find this out, the FDF has calculated different scenarios and sensitivity analyses. In the baseline scenario, the demographic-dependent public expenditures (old-age and disability pensions, healthcare, long-term care and education) will increase from 18.4% of GDP in 2009 to 22.3% of GDP by 2060. Particularly the social security system will face a financial gap. While compared to other European countries Switzerland is in a good position (the increase of the gross debt is much lower than the EU average) reforms are needed since the debt rate will reach according to FDF estimations 131% of GDP in 2060. However, direct comparisons with other countries have to be analyzed carefully as each country has different health, social security and pension systems.

If you need more insights on our rating of states or are interested in the Inrate sustainability research in general, please contact Diego Rudolph, +41 58 344 00 22, diego.rudolph@inrate.com
 

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