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Vendor Strategy: ICE Builds on Exchange, Mortgage Success to Grow in ESG

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Intercontinental Exchange (ICE) is seeking to establish itself as a leading provider of sustainability data, leveraging the information-generating potency of its market venue, clearing house and mortgage businesses.

The Atlanta and New York-based company’s recent acquisition of a number of climate data services, however, underlines its plans to expand its multi-asset ESG information offering. From serving the private investment sector to offering solutions on biodiversity conservation – and despite recent pushback on the global ESG project – ICE has put sustainability at the centre of its global business model.

“The ESG space is getting so crowded – everywhere there’s another start-up or another firm entering the space,” explains ICE head of sustainable finance in the US Larry Lawrence. “But we’re very well positioned given the foundation that we have and some of the things we built over the years.”

Lawrence is confident that those foundational provisions give ICE the edge in achieving what he says is the most important guiding principle of ESG data; that it must be  available at scale. What he calls “niche exercises” by a multitude of smaller companies in showing corporates how to find, use and sell their data will have a limited impact on meeting the United Nations Sustainable Development Goals (SDGs) that underline almost all ESG intentions.

The pursuit of scale partly explains why ICE has been so acquisitive in recent months. Late last year it purchased climate-focused data and analytics companies risQ and earlier this year it bought UK-based climate risk data provider Urgentem.

At the same time ICE has developed its own in-house capabilities, doubling the number of companies it covers in its general ESG corporate product to 10,000.

Lawrence, who took up his position at ICE in January after 22 years at MSCI’s impact investing business, says the new services and acquisitions will give the company’s ESG unit the heft and range to operate at the scale needed to satisfy demand from investors and regulators.

“We’ve barely scratched the surface in taking advantage of those foundational elements,” he tells ESG Insight.

Patch of Dirt

The purchase likely to figure most prominently in immediate expansion plans is that of risQ and Level 11 which built a geospatial data tool that enables the identification of assessment of risks and opportunities linked to securities within specific locations in the US.

From that acquisition, ICE has built its ESG Geo-Analyzer. This is going to be key in differentiating the company’s green finance offerings, Lawrence says. Being able to tie a security to a “patch of dirt” enables ICE to provide financial institutions with the tools to focus their impact investments with  improved accuracy, a prospect that excites Lawrence the most.

When combined with ICE’s research and the data that supports, and is generated by, its mortgage-backed securities (MBS) business, investors are able to pinpoint the communities with structural challenges and that can benefit most from an influx of targeted capital. It provides an effective vehicle for addressing not only a location’s climate risks but also many of the social problems that may blight it.

He cites the use case of a banking client that could use the ESG Geo-Analyzer to find places with relatively low levels of mortgage refinancing. This is a metric used by lenders to establish available wealth; areas that have not taken advantage of refinancing are likely to have less available credit wealth.

“What we’re able to do there is tell, for a given investment, how likely that investment is going to make an impact,” says Lawrence. “It’s a great use case and my goal is to continue to scream from the rooftops and spread the word that this is a capability we have and that everyone should be taking advantage of it.”

The ESG Geo-Analyzer has given ICE a vehicle by which it can further take advantage of the data and services the company inherited through its acquisitions.

RisQ’s climate-risk data and analyses, for instance, can show investors the likelihood of their assets being affected by localised weather impacts such as hurricanes or floods. Level 11 Analytics can provide the expertise to create estimation and inference models when gaps in a location’s data records are missing. And Urgentem’s capabilities can be harnessed to establish a location’s exposure to net-zero transition risks.

Lawrence says ICE is developing the tool for more use cases. Among the drivers of this is that the fixed-income market has long been “underserved” in terms of ESG. Many more of its clients – even the smaller ones – are approaching him for data that can give a view of risks to their bond, loans and mortgage portfolios, he says.

Private and Wealthy

Fixed income is by no means the only focus of ICE’s ESG ambitions. Lawrence sees huge opportunities in the private and wealth sectors. The former is rapidly building up its capabilities, he says, because investors in private businesses have to do more work in a sector dominated by smaller firms that are less able to disclosed their sustainability data.

Private equity companies are looking deeper into their portfolios because they don’t want to be tripped up by poor sustainability records when it comes to listing their assets.

For wealth managers, the impetus to embrace ESG is survival. Every generational transfer of wealth leaves family offices and specialised managers out of pocket, Lawrence says. With the next group of inheritors likely to be the most ecologically and socially minded yet, it makes sense for wealth houses to start seriously building up their ESG expertise.

“Once it gets into the hands of retail and wealth you’ll see more information emerge about the sustainability characteristics of a particular company or a fund, and to me that’s a great result,” he says. “Obviously, the data needs to be correct. Investors need to understand what they’re looking at, and that’s up to us to help make sure that’s clear. But I think that’s where you’re going to see a lot of adoption.”

Won’t Say No

ICE’s ESG expansion continues undaunted by recent criticism of sustainability markets. Pressure and sanctions have been pressed upon asset managers in some places to avoid the sector, and politicians and some vocal opponents within the financial industry have denounced the ESG project as misleading.

Lawrence, however, welcomes the criticism, arguing that the industry is at a “maturation phase” in which it would benefit from the opportunity to “improve, refine and weed out greenwashing”.

Evidence of the importance ICE attaches to sustainability was made plain by the appointment of leading regulatory counsel and former Securities Exchange Commission director Elizabeth King as head of its ESG business and chief regulatory officer, answerable to the chief executive. It’s also committing substantial investment into the business and hiring a swathe of new talent to help direct that growth.

The most important driver of this expansion, Lawrence emphasises, is that investors are still clamouring for data and insights. Instead of bad publicity deterring investors, more are coming to ICE asking for help to fuel their own growth plans.

“If given the opportunity, people will make a decision that will have a net positive versus a net negative outcome,” he says. “Just making that information more transparent and more accessible” will help them do that.

“We’re in it for the long haul.”

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