American regulators’ demands that municipal bond issuers show proof of their ESG claims is being underlined by rising inquiries to one of the leading providers of muni sustainability data.
Cusip Global Services (CGS) has seen a steady rise in client referrals to debt flagged as green on its platform since the US company began including verification data in its offering late last year.
CGS presents Environmental, Social and Governance (ESG) data attributes for corporate and municipal bonds in its data feed and desktop products. The new ESG tags enable bond issuers and investors to categorize securities that contain ESG attributes, distinguishing them as green, social, or sustainability bonds. These assessments, which are stipulated in the offering documents, are standards created by third-party organisations – the Climate Bonds Initiative (CBI) and the International Capital Markets Authority (ICMA).
Roger Fahy, Vice President CUSIP Product & Global Data Operations at CGS, said client queries have risen as more green munis have been issued.
Social Bond Flags
“Our existing client base has expressed interest in learning more about these new green and social bond flags,” Fahy told ESG Insight, referring to the company’s ESG indicator service it added in October. “We’re seeing more deals that come to market like that and when there are new classifications as such, we are populating our database accordingly.”
CGS also offers, in partnership with ISS ESG, ESG data on muni bonds which includes CUSIP Issuer mapping information about the regions they cover to US geographic identifiers (GEOIDs) – government codes issued to every government area from local municipalities and states to counties and cities. By matching the two sets of data, investors can assess the potential impacts of environmental or social risks, such as flood areas, hurricane paths and social decline on the muni bonds they buy.
As sustainability has grown in importance and issuers have begun selling more debt to raise funds for ESG projects, investors and officials have requested proof that they are not greenwashing. The Municipal Securities Rulemaking Board (MSRB), which oversees the US muni market, said in December it wanted to see more proof from issuers.
According to Bloomberg, only half of all green-labelled muni bonds have been verified by third parties, up from 35 per cent three years ago. Even so, they still account for a small fraction of the $4 trillion muni market. S&P Global estimates that ESG-flagged muni bonds will total $60 billion by the end of this year.
The growth of such bonds had been slow because of the difficulty in matching ESG issuer data to the geographical areas they cover. CGS’ product has helped address that. It adds ESG data after bonds are issued. The recent addition of CBI and ICMA data has given investors greater transparency into the opportunities and risks of the assets they buy.
CGS is managed for the American Banking Association by FactSet, which took over the role from S&P Global earlier this month. It sources ESG scores from Institutional Shareholder Services’ (ISS). While those services remain on the company’s core offering, Fahy said CGS was open to working with other ESG data partners.
“As there’s more and more interest in ESG bonds, having a programmatic way to identify those more precisely is what our clients are looking for and so we will continue to invest there,” Fahy said.
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