ICE launches social impact scores to help municipal bond investors with ESG

ICE Data Services has launched a new service designed to help investors navigate the complex world of social impact investing in the municipal bond market.

The ICE social impact scores, powered by risQ, will let the service’s users 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.

“We have seen demand for impact investing,” Spencer Gallagher, ICE’s senior director of product management, told The Bond Buyer. “Over the past year or so we’ve developed a lot of alternative, location-based data — we started with climate, which makes a lot of sense to model by location, and we worked with ADP on payroll demographic data, so it was a natural step to move into social impact data which fits with the ‘S’ pillar in ESG.”

The ESG market has been growing by leaps and bounds in the United States as more companies and individuals make investment decisions based on ESG principals.

As market participants look at the potential social impact of their investments, ICE designed this new service to let users understand and score the potential social impact of their muni bond investments.

ICE focused on the municipal bond market, where many proceeds are already used to build public works, parks, schools, libraries and other infrastructure.

“These new social impact scores provide a deeper level of socioeconomic and demographic data on the municipal bond market, enhancing the decision-making process for investors as they execute their sustainable and socially-conscious investing strategies,” said Lynn Martin, president of fixed-income and data services at ICE.

ICE said this could be particularly helpful for an investor who is assessing similar bonds issued by different local governments. Looking at how the proceeds from these bonds could impact the population at the municipal level can help make more informed decisions.

“For example, will a new hospital or school have a bigger impact for the people in Newark or Princeton, New Jersey, two communities with vastly different ICE social impact scores?” Gallagher said. “The ICE social impact scores allow investors to consider the impact of their investment in a way they’ve never been able to in the past.”

Gallagher noted it will now become easier to determine which investments are likely to have a greater social impact. The power of this analysis is multiplied when looking across a portfolio of municipal bonds.

“If you look at the wealthy suburbs of New Jersey and you compare them to some of the less wealthy areas of the state, it becomes readily apparent that the investment in a school or educational system may have more impact in the less wealthy community.”

The social impact scores use multiple public data sources and peer-reviewed statistical methods to help quantify socioeconomic vulnerability and need. The scores include data on affluence, poverty, education, employment, housing costs, racial diversity and health challenges.

Once calculated, the scores are mapped to ICE’s U.S. municipal bond reference data, providing an additional metric for customers to use to evaluate an investment or a portfolio.

“Through our proprietary way of calculating this information, we can come up with this score, a scale of zero to 100, on perceived social impact of an investment,” Gallagher said.

The scores were designed to signal the potential social benefit of an investment within a specific area, with higher scores indicating an investment in a specific community is expected to have a larger potential social impact than an investment in a community with a lower score.

“Whether investors are aligning their investment program with their values and mission or if they’re seeking to better quantify and understand the social impact of potential investment opportunities, these resources provide clearer insights into those goals,” said Evan Kodra, CEO of risQ.

The aim is to have an apple-to-apple type of comparison for muni bonds.

“It was one of our goals — to be able to look at cohorts and compare them with this data,” Gallagher said. “It’s the same with our climate data — two credits that look very similar can have disparate climate risk or in this case disparate social impact scores. We wanted to bring that alternative data into play and make it more actionable for investors.”