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ICE Expansion of ESG Service to More Bonds Taps into Growing Trend

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Intercontinental Exchange (ICE) has extended its ESG data coverage to two million fixed income instruments as demand for sustainable investments outside of equities gathers pace.

The New York-based company said it had broadened its Environmental, Social and Governance Reference Data product because the fixed income market was relatively underserved for sustainable finance participants. The service extension will take in sovereign, corporate and municipal bonds as well as money market paper in North America, Europe and Asia.

“While much of ESG investing to date has been focused on equities, our offering allows users to assess risks and opportunities across multiple asset classes, all at the instrument level,” said Anthony Belcher, Head of Sustainable Finance at New York-based ICE.

The issuance of green, social and sustainable bonds has increased in recent years, but they represent a tiny fraction of outstanding debt instruments. According to BBVA Global Markets Research less than $1 trillion of the $128tn of publicly traded debt was ESG linked.

Nevertheless, the sector is growing. ING Bank forecasts that corporate ESG issuance will increase to €100 billion ($113bn) in 2022, €35bn of which will be sustainability-linked bonds. At that rate, such bonds will account for 35 per cent of total corporate supply next year, the bank added.

Greater Influence

ESG-linked bonds are increasingly seen as attractive because investors are able to have a greater say in their structure and terms than they are in equities, wrote BNY Mellon’s Head of Responsible Investment Research and Stewardship Joshua Kendall and Frances Barney, Head of Global Risk Solutions.

As pressure grows on them to hold impactful assets, that sort of influence will become a powerful tool in helping investors meet their ESG mandates.

“A bond with unattractive terms could lead to financing on less favourable terms for an issuer,” wrote Kendall and Barney in a piece for the Official Monetary and Financial Institutions Forum. “In rare cases, an issuer may withdraw an issue if there is not enough demand and sometimes change terms or documentation language to comply with investors’ requirements.”

ICE said the lack of ESG data on bonds was the result of the complexity and size of the fixed income market, which it put at three times that of the equities market.

Nevertheless, data vendors and managers are introducing new products that provide more transparency into fixed income securities. For instance, S&P Global’s CUSIP Global Services (CGS) last month incorporated ESG indicators for US corporate and municipal bonds within its data feeds.

That followed a survey by Bond Buyer that showed the number of financial market participants and observers who rated ESG as important in the muni industry were for the first time in the majority. Further, two-thirds saw ESG as a driver of greater issuance.

Asset Managers

The clamour among asset managers to include ESG data in their fixed-income investment decisions was made clear at a gathering of market participants for Bloomberg’s recent OneData ESG Day conference.

Speakers agreed that it was apparent that fixed-income clients wanted sustainability and social data to be regarded as an integral part of the general data profile of financial instruments.

“It’s important that ESG data be part and parcel with other traditional bond data,” Erin Bigley, Head of Fixed Income Responsible Investing at AllianceBernstein told the conference. “So if you’re looking at duration, you should be looking at ESG factors in a similar fashion. I think that is an important best practice.”

Drew Schechtman, Head of ESG Strategy at AIG said data vendors would be crucial in developing bond ESG disclosures because asset managers who had tried to service the data themselves had found the challenge daunting.

“It’s particularly challenging for us with our asset mix and heavy focus on fixed income, alternatives and real estate, where each security has its own ID,” Schechtman told the conference. “Some firms have proprietary systems that can actually solve all that but even if you do have a proprietary system with ESG scores and identifiers and issuer names, how much time does it take to build that and maintain it?”

Daniel Rourke, Vice President at Calvert Research and Management, agreed: “What it really takes is having industry experts to be able to separate what actually matters, what is material from from a lot of the sort of mixed signals that you can get in the data that’s available.”

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