Assured Guaranty is expanding its efforts to provide environmental, social and governance data in the public finance space, partnering with UrbanFootprint, an urban data intelligence provider, with a new tool designed to assess risks.
The product, Municipal Bond Insights, assesses climate and community resilience and risk for the public finance sector, providing a better understanding of risk in individual assets and across portfolios by combining current economic, socio-demographic, and community-scale data with climate and natural-hazard data, UrbanFootprint Chief Executive Officer Joe DiStefano said.
“It brings all of that information together in a singular place that insurers and asset managers can then use to get a much more comprehensively understanding of the broad range of risks and opportunities across the landscape,” he said.
Assured has used UrbanFootprint’s data for more than a year in its financial guaranty business, to assess the risk of munis based on climate metrics and support both single credit and portfolio-wide research. The company invested in UrbanFootprint’s $25 million Series B funding round in March. UrbanFootprint was founded in 2014.
Using a composite, nationwide score of ESG assessments, risks for any asset or municipality and quantifying the possible effects of natural disasters and man-made hazards on communities, resources and infrastructure, DiStefano said Municipal Bond Insights offers real-time insights to analyze, rank and compare prospects. By combining current economic, socio-demographic, and community-scale data with climate and natural-hazard data, including risk of fire, flood, heat waves, sea level rise, and storm surge, “Municipal Bond Insights provides public finance companies with a deep and actionable understanding of risk into individual assets and across portfolios and helps improve risk-adjusted returns,” a release said.
“Making sense of that matrix of risk is one piece of the puzzle and very important, but understanding how those risks impacts communities,” DiStefano said. “So bringing that kind multivariate insight to the municipal bond market is mission critical to comprehensively understanding risk.”
“You end up with this massive ‘knowledge graph’ that allows our users to hone in on things that are most important to them,” he said.
“The product has a tremendous amount of flexibility, which allows the user to arrange and analyze data based on specific needs,” said Justin Land, managing director of Municipal Analytics at Assured Guaranty. “We provide the data and flexible front-end software, and users can figure out new and interesting ways to use this data over time.”
Land, who joined Assured in August from Charles Schwab and before that, 25 years at Wasmer Schroeder, said the ESG data offers additional information beyond what’s commonly available in the market, serving as “another way to assess credit risk in the municipal market for asset managers, issuers, financial guarantors, and other public finance professionals.”
Moreover, as more asset management firms are increasing their focus on ESG, having hard data that they can point to, which underlies their investment philosophy, is becoming more important, he noted.
Investors are requesting more ESG-related information from issuers, and some participants say that ESG has led to a larger investor base for the asset class. An increasing number of funds specifically devoted to ESG have been introduced recently, including sustainable exchange-traded funds from VanEck and State Street and Nuveen.
ESG is not without its detractors and pushback against the use of ESG scores in public finance ratings and prohibiting investing public funds into ESG are gaining steam in Republican-controlled states, with several officials calling ESG designations politics.
Regardless of this and although there is no standard in the area, a number of participants are developing tools to provide more ESG data and address ESG risk.
BondLink launched an ESG solution aimed at improving how municipal issuers can highlight how they’re addressing current ESG credit risks and showcase their specific green bond programs to investors in April. DPC DATA integrated climate and social risk scores into a product that uses Spatial Risk Systems’ (SRS) geospatial data, mapping physical climate risk and carbon transition risk for cities, counties and school districts, back in March. ISS ESG earlier in the summer offered its Muni QualityScore to provide issuers with an ESG score with datasets focused on their specific locations.
Land noted many of the ESG products in the muni market primarily focus on climate data, whereas while UrbanFootprint’s software has an enormous amount of climate data, it also has economic, socio-demographic, and community-scale data — such as educational attainment and income levels, along with other important data inputs.
Thousands of previously segregated data points on climate, land use, economics and social situations are compiled, mapped and analyzed by UrbanFootprint, DiStefano said.
UrbanFootprint’s sector-specific data products and mapping tools make it stand out in the muni space.
“The comprehensive economic stress and socio-demographic information, the climate and other data, all of that lives in one place,” he said “You don’t have to go to 16 different places in order to get a sense of what’s happening in the community. We brought that all together, presented in a way that’s an important differentiator here in the market.”