Presentation on Uruguay's ESG Fundamentals

ESG (Environmental, Social, Governance) factors are increasingly important to investors when making financial decisions. This term refers to a broad range of qualitative and quantitative considerations related to the sustainability of a debt issuer and its material credit implications. It implies the application of environmental, social and governance aspects in the evaluation of sovereign credit risk. Large companies and institutional investors have begun to focus their attention on these items when investing, incorporating non-financial aspects into risk and opportunity analysis.

Uruguay leads important regional indexes in this matter, and has managed to position itself at the same level as most developed nations, according to several reference institutions such as BlueBay, Verisk Maplecroft or JP Morgan.

Determining which ESG factors will affect the credit risk of a sovereign issuer, and to what extent, is more difficult than it is for corporates because countries are more complex: credit risk is driven by the combined interactions of national economies, political systems, and ecosystems with each other and the global economy. However, it is becoming increasingly noticeable that more investors as well as analysts and credit rating agencies, take into consideration ESG factors (such as the economic effects of environmental issues, including climate change), or social and governance issues, (such as control of corruption, rule of law or democracy quality) in order to adjust their projections for economic growth, stability of income and government expenditures as well as the sovereings' ability to withstand shocks, among other drivers of government creditworthiness.

Uruguay has shown very significant progress in all of the ESG dimensions. In the recent report "The role of ESG factors in sovereign debt investment", jointly prepared by BlueBay Asset Management, one of the largest specialists in fixed income asset management in Europe, and Verisk Maplecroft, a global risk analysis company specialized in ESG data, Uruguay is positioned at the same level as the most developed countries in the world, above nations such as Singapore, or Taiwan. With an overall performance that places it in the highest score group, Uruguay records its best performance in aspects such as future and current governance, social resilience, current social situation, future environmental and current environmental situation.

On top of that J.P Morgan has recently incorporated the ESG factors to weigh the country risk in Emerging Markets, thus obtaining the J-ESG indicator.

Uruguay maintains one the highest weighting in the J-ESG index among emerging markets, with a higher weight than the obtained in the conventional EMBI index.