Sanctions – a popular topic with our law firm content partners – are mentioned under some ESG policies, though where firms are legally obliged to observe them this is arguably more of a regulatory compliance policy than a voluntary ESG policy. There can however be some discretion over which sets of sanctions to follow, with US, UN, EU, Swiss and other sanctions featuring in different policies. Sanctions can also be contentious for some neutral countries, which have extensive trade, investment and banking relationships with sanctioned countries.

The European Union list of non-cooperative jurisdictions (which is, politically incorrectly, dubbed “the EU tax haven blacklist”) is also controversial as there is not even consensus amongst governments over the list – for instance the US Government is not happy to see American Samoa and Guam on it. Nonetheless, the list features in some pension fund ESG policies, sometimes under the umbrella of “fair taxation” policies promoted by groups such as Danish pension funds. This list changes now and again: in October 2020, the Cayman Islands and Oman were removed while Anguilla and Barbados were added. I have never seen a hedge fund domiciled in any of the other jurisdictions, which are: American Samoa; Fiji; Guam; Palau; Panama; Samoa; Trinidad and Tobago; US Virgin Islands; Vanuatu and Seychelles.

Macro ESG becomes even more subjective when ESG scoring and ranking systems are applied to countries, because different investors will define their own thresholds of acceptable behaviour on metrics such as human rights and also apply different weightings to various criteria. At the highest level, the metrics for E (environmental), S (social) and G (governance) could be equally weighted, or differently weighted, and then the criteria within each category could vary in nature and weighting. Some managers have developed their own scoring systems while others may use one or more third party ESG ratings agencies. Nonetheless, one generalisation that can be made is that some ESG scoring systems seem to result in large numbers of African and Middle Eastern countries, most of which are classified as “frontier markets”, being off limits.

Such exclusions may conflict with other ESG policies such as “impact investing” to promote UN sustainable development goals (SDGs) such as financial inclusion, especially for women, through strategies like microfinance loans. Perhaps macro ESG policies might at some stage diverge from alternative credit ESG policies.