ICE joins a growing list of firms delving further into ESG

As environmental, social and governance factors have become more important to investors in the municipal market, more market participants are jumping into the space to provide ESG data and analytics.

Intercontinental Exchange this week expanded its reference data coverage to now include two million fixed-income instruments, including municipals, in an effort to provide greater transparency for users to understand ESG risks and opportunities.

With the rise of sustainable investing, more investors have become focused on incorporating ESG data into their investment research and decision-making processes.

Anthony Belcher, head of sustainable finance at ICE, said expanded coverage was born from wanting to help investors and other users be more practical.

“So whilst we'd already built out our ESG product, we've been able to link all our ESG information to individual securities, which makes it much easier and more transparent for portfolio managers and other investors to select securities and execute their investment strategy,” he said. “They can do that at the security level and tie that to actual bonds they’re able to buy in the marketplace.”

Belcher said investors and other participants find it helpful to look at and understand the ESG information and how that “corporate hierarchy” relates to the securities.

“Being able to bring those two pieces together really adds value for our customers,” he said.

ICE’s ESG Reference Data coverage includes corporate bonds, municipals, sovereigns and money markets across North America, Europe and Asia, and provides detailed ESG attributes and indicators that may be financially material, such as greenhouse gas emissions reported, board diversity, benefits and many others.

The data set allows market participants to enhance their global equity and credit analysis by incorporating ESG-related metrics into their research and due diligence process.

While ESG investment considerations have grown around the globe, the U.S. municipal securities market is just beginning to delve into the space in varying degrees.

From the world's largest asset managers to ratings agencies to technology and data providers to state and local government issuers themselves are focusing on ESG — climate change, social justice and green bonds.

There is demand for this data. A Bond Buyer report released in October noted that more than half of respondents, 56%, rate ESG as important to the municipal industry with the greatest importance placed on the environmental aspect at 73%, followed by governance at 60% and social at 50%. Issuers place greater value on governance. A large majority, 77% of respondents, believe there should be a universal “language” for ESG in the municipal space.

A growing number of interested parties are weighing in on ESG metrics. CUSIP Global Services in October announced the addition of ESG data attributes for corporate and municipal bonds in its data feed and desktop products. Its new ESG tags will enable bond issuers and investors to instantly identify and categorize securities that contain ESG attributes, distinguishing them as green, social, or sustainability bonds. ESG categorization is determined by CGS upon review of primary offering documents as part of the CUSIP issuance process.

For municipal bonds, the new ESG attributes can be further supplemented by CGS’ collaboration with ISS ESG, which links proprietary ESG scores for U.S. municipalities to CUSIP municipal issuer codes, the firms said. The ISS ESG scores, updated quarterly, offer additional ESG insights into US municipalities using a number of criteria, including socioeconomic, infrastructure, and climate-based factors.

“With total new issuance volume for green, social and sustainability bonds reaching nearly $500 billion in the first half of 2021 alone, it is clear that ESG principles have become a major priority for issuers and investors alike,” said Scott Preiss, managing director and global head of CUSIP Global Services. “By clearly tagging ESG bonds in the pre-market environment — and providing granularity on the specific type of ESG bond being issued — we are making it possible to seamlessly track these securities throughout the financial system using our universally recognized, industry standard taxonomy.”

In October, the Municipal Securities Rulemaking Board launched a new feature on its Electronic Municipal Market Access site that indicates when an upcoming municipal security new-issue is either self-designated or certified as meeting certain ESG criteria.

The MSRB also will be issuing a request for information in the coming weeks seeking comment from market participants on ESG trends in the municipal securities market.

The Government Finance Officers Association in October released best practices for ESG for the issuer community while calls for greater equity and inclusion have prompted some of the largest investment firms on Wall Street to prioritize ESG concerns when working on municipal bond deals with state and local governments.

The list continues to grow.

ICE said it continues to develop sustainable finance offerings in the marketplace and has been for many years, from the carbon allowance and carbon trading schemes. ICE adds to this ESG data set including municipal climate risk data, according to Belcher.

ICE had already partnered with risQ in August to create social impact scores, which allows the service’s users to compare which local communities will be socially impacted the most by their investments, a strong component in socially conscious investing, which is designed to advance environmental, social and governance issues, wrapped up in the term ESG. They also partnered with risQ to provide climate data early in January 2020.

The expanded data set will streamline the process for how investment managers and professionals identify and manage ESG in a more efficient fashion, which, in turn, will make it easier to do, he said, adding the barriers for bond investors to integrate and use sustainable data in their process will be lowered.

“What I would hope to see is that we'd see an increase in the use of ESG and sustainability data, which could only be a good thing as people look at and try to understand the impact of their investment,” he said.

Lynne Funk contributed to this story.