(Bloomberg) -- A $5 trillion investor coalition wants to change how markets assess government bonds to help unlock climate finance to emerging markets. 

The Assessing Sovereign Climate-related Opportunities and Risk (ASCOR) project, spearheaded by BT Pension Scheme Management and the Church of England Pensions Board, has proposed a framework it says focuses on fairness between richer and poorer countries. It comes amid concern that simplistic ESG analysis might penalize the nations most exposed to — and least responsible for — climate change.

Low- and middle-income countries are exempted from several indicators, such as the setting of a nation’s net-zero target by 2050 and the phasing out of combustion-engine vehicles by 2035. Rich states, meanwhile, will be assessed on factors that include whether they’re living up to their collective commitment of $100 billion of annual climate finance for poor nations.  

“This is an opportunity for countries to communicate what they’re doing and engage with interested investors who have a lot of capital,” said Victoria Barron, head of sustainable investment at BT Pension Scheme, in an interview. “What we don’t want is countries who aren’t as advanced on climate action and most vulnerable to climate-change impacts to feel like they don’t have a voice at the table.”

Sustainable finance is less advanced in sovereign debt than in the corporate world, where funds apply an array of strategies under the rubric of environmental, social and governance (ESG) investing. But metrics and models designed for corporations don’t easily translate to governments. ESG scores for countries have been criticized for being too correlated to a nation’s wealth. 

ASCOR wants to create a free voluntary tool that assesses countries on climate change and serves as an “industry standard for net zero-aligned sovereign investing.” It says its proposals, developed with the Transition Pathway Initiative and under public consultation until March 31, will benefit both issuers and investors by making it easier for countries to demonstrate their climate progress over time. 

Pensions funds such as those behind ASCOR are among the most important bond buyers in the world, and the Church of England was an early proponent of socially-responsible investing. The project’s advisory committee includes Europe’s largest asset manager Amundi SA and Franklin Templeton. 

The aim is for every sovereign-debt-issuing country to be assessed against a framework that will analyze emission pathways, climate-policy action, and opportunities to finance the transition. The latter is critical given that many countries facing the greatest climate risks currently have insufficient access to financing, ASCOR said.

Still, there are places where indicators that might better reflect poorer nations’ climate track record aren’t yet ready, according to ASCOR. Its framework uses so-called production emissions — meaning those emitted within a country’s territory — due to a lack of data on consumption emissions, which include the emissions embedded in imported goods. 

Barron said production emissions alone can favor richer countries that don’t produce much but consume a lot. She said the ASCOR tool is designed to incentivize the calculation and disclosure of consumption emissions. 

“We are very mindful of the north-south divide in terms of the need for capital, and in terms of responsibilities for historic and for future emissions,” she said. “We want to ensure issues of justice and fairness are fairly reflected.”

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