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ICE to Expand Geospatial Framework for MBS ESG Assessment Globally

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Intercontinental Exchange (ICE) is planning to expand globally a hyper-local geospatial data grid that the market services giant has begun using to provide mortgage investors with sustainability risk information.

The Atlanta and New York-based company expects the tool, which can map data to spaces down to 100 metres square and can drill down to the level of individual properties, will be extended beyond the US’ borders within the next year to 18 months. The grid, which expands on data linked to US CUSIPs – officially recognised identifier codes for different parts of the country – can be used by fixed-income investors to examine ESG risks including flooding and wildfires, as well as poverty- and healthcare-linked and other demographic risks.

Rob Sinnott, a Director and Product Architect at ICE, told ESG Insight the tool enables investors to assess the ESG risks of “anything that is tied to a patch of dirt”.

“We’ve spent a lot of effort trying to make that really efficient, make it really scalable, so that we can help clients and the market, answer these questions about literally millions of securities and do it in a computationally effective and efficient way,” Sinnott said from the company’s offices in Bedford, Massachusetts.

“If we can geolocate it, if we can find it on the Earth, we can try to help investors understand the climate and physical risks and the social vulnerability or social impact potential of investments on those patches of dirt.”

Multiple Data Sources

CUSIPs, which are managed by FactSet unit CGS on behalf of the American Bankers Association, are attached to location-based financial instruments, enabling investors to compare assets across portfolios and track the impacts of local sustainability factors on their performance.

Such data is being increasingly accessed to risk-adjust the more than $16 trillion market for municipal and mortgage-backed securities (MBS).

ICE’s newest product takes in single-family, multi-family and commercial mortgage-related securities and overlays ESG data obtained from a multitude of sources including the Federal Emergency Management Agency (FEMA), the body tasked with monitoring and responding to natural and other disasters. The grid components are also fed climate and environmental models driven by data from organisations like the US Forest Service, policy data from local authorities and asset data from issuers.

That information is then also combined with data specific to individual properties, including their estoimates of construction materials, to assess the assets’ vulnerability more accurately to climate and social risks. Assessments also take in information on surrounding areas and regions within driving distances to reflect the influence of sustainability factors on the people that use or inhabit the properties.

“Investors and market participants have struggled to effectively incorporate ESG considerations for residential and commercial mortgage-backed securities,” Elizabeth King, President of ESG and Chief Regulatory Officer at ICE said in a statement. “ICE’s solution provides high-quality and granular data that covers various fixed income sub-asset classes. This data allows investors and other market participants to consider the full environmental and social picture when considering a new security or analysing their current portfolio.”

The product currently provides sustainability data on more than 1.5 million residential and commercial MBSs and accounts for about 95 per cent of all outstanding securitised real estate loans in the US, IC said.

Customised Presentation

Sinnott said clients can access the data in the form of their choosing.

“We grab information … and then we aggregate it up to the portfolio, the sub-portfolio level or whatever the client prefers,” he said. “We like to drown people in data!”

Clients can receive information expressed thematically – based on climate or demographic risks, for instance – but Sinnott is keen to stress that ICE doesn’t provide ratings.

“The metrics that we provide are often used in conjunction with other disclosures like use of proceeds on individual bonds, or items that are specific to the use case of the cash that is coming from the issuance,” he said. “It’d be unethical for us to say that there’s a rating for any a given investment with only part of that view.”

While CUSIPs are given to areas that have assets attached to them, ICE’s ultra-granular grid tool can offer a locational identifier to parts of the country that don’t yet have such a code.

Sinnott said ICE’s newest tool offers a broader benefit to society.

“Everyone, be it agencies, consumers, taxpayers or investors will benefit if we can help steer people to invest in properties that are less likely to get flooded or damaged and are more likely to be resilient to those kinds of hazards,” he said.

“Similarly, I think everyone is going to be better off if we can help investors and taxpayers, municipalities and other private investors secure resources in ways that help vulnerable populations get on that escalator and improve those communities.”

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