Editor’s note: this is the second in a three-part series by Nicholas Virzi examining the implications of ESG factors with regards to national ratings and government policies. Read the first and third part of the series.
This article focuses on the international scores that Guatemala receives on ESG matters and how these impact her credit ratings and, consequently, her borrowing costs. The World Bank, whose data the country risk agencies are wont to reference, has a thorough, established ESG framework. The World Bank’s scores on ESG matters such as governance and the environment are considered by the country risk agencies in their final evaluations of a particular country.
To start, one should note that Guatemala has among the best country risk ratings in her region, having been upgraded by Fitch in 2023 and Standard & Poor in 2024. On the international level, Guatemala can be counted on to have a stable exchange rate, low-to-moderate inflation, high monetary reserves, and historically low fiscal deficits and low public debt (World Bank). These factors led the Bank of America to affirm:
“Guatemala’s macroeconomic history is among the best from the perspective of the investor. This is why we recommend buying Guatemalan products.”
– Alexander Müller, chief economist for the Andean Region, Central America, and the Caribbean
Guatemala’s historic macroeconomic stability and sound monetary policy, backed by hard data, have been exceptional in the developing world. However, her country risk ratings are negatively impacted by the less positive assessments on ESG matters.
Guatemala deserves much better risk ratings.
The Environmental Pillar
According to the World Bank, its environmental pillar:
“measures the sustainability of a country’s economic performance given its natural resource endowment, management, its risk or resilience to climate change, and other natural hazards. It pays particular attention to the internalization of environmental externalities created by economic activity. It also accounts for sustainable energy access and food security, crucial factors for stable long-term economic growth.”
The factors that the World Bank takes into account in its environmental pillar include the following variables:
- CO2 emissions, in metric tons per capita;
- renewable electricity output, as a percentage of total electricity output;
- renewable energy consumption as a percentage of total final energy consumption.
On CO2 emissions, measured in metric tons per capita, Guatemala’s last globally comparable data point (in 2015) was 1.06. This compares to 2.82 for Latin America and the Caribbean (LCN), 5.71 for the upper-middle-income (UMI) category, to which Guatemala belongs, and 4.6 for the world average, as per the World Bank database.
On renewable energy, Guatemala also stands out. Guatemala’s renewable electricity output as a percentage of total electricity output, as of the last internationally comparable measure (2015), stood at 60.4 percent. This was almost nine percentage points above the LCN regional average (51.7 percent in 2015), an estimated 35 above the UMI average (25.54 percent), and 37 above the world average (22.85 percent).
On energy consumption, Guatemala also leads. Guatemala’s renewable energy consumption as a percentage of total final energy consumption was last reported by the World Bank to be at 63.3 percent. This is far more than the average percentage reported for the LCN region (28.2), the UMI category (14.6), and the world average (17.4).
In sum, Guatemala scores above the LCN region, the world, and the UMI countries, in emissions, renewable electricity output, and renewable energy consumption.
The Social Pillar
According to the World Bank’s ESG framework:
“The social pillar quantifies the sustainability of a country’s economic performance with regard to its efficacy in meeting the basic needs of its population, reducing poverty, managing of social and equity issues, and investing in human capital and productivity.”
In the social pillar, there is no escaping the fact that Guatemala faces significant challenges in reducing high poverty levels. However, many of the recommendations given by the international organizations that evaluate Guatemala’s development prospects would directly degrade opportunities for industrialization and economic growth. International recommendations on increasing wages and labor regulations, for example, would negatively affect Guatemala’s competitiveness, growth, and poverty-reduction prospects.
The Governance Pillar
The World Bank has a database for its Worldwide Governance Indicators (WGI), which are scored on a percentile scale going from 0 to 100 (100 is the best). The WGIs cover the following general indicators:
Government
- effectiveness;
- regulatory quality.
Human rights
- voice and accountability.
Stability, rule of law
- control of corruption;
- rule of law;
- political stability;
- absence of political violence.
The governance pillar is where Guatemala’s country risk ratings are most unfairly affected.
On control of corruption, Guatemala is given a percentile score of 11.32 out of 100. This is worse than the score given to famously corrupt states like Russia and Ukraine, and even failed entities such as Afghanistan, Lebanon, and Gaza.
Similarly, on the rule of law, Guatemala scores 13.2, worse than Ukraine, Iran, Ethiopia, and Gaza. Under any objective measure, Guatemala is not in the same position as Gaza, a failed, terrorist entity.
On voice and accountability, Guatemala is given a percentile score of 33.82, a worse score than Ukraine, which has canceled elections, Bolivia, which recently was reported to have suffered an attempted military coup, and El Salvador, where the term-limited president Bukele won a sham reelection.
In sum, the ESG scores used to downgrade Guatemala’s country risk rating are more than questionable. Given her strong economic indicators, Guatemala deserves investment-grade status. Political evaluations should not be used to degrade the economic potential of developing countries like Guatemala. The end result will only be more poverty and illegal immigration into the United States.
