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ICE Offers ESG Ratings On Mortgage-Backed Securities

Sai De Silva

Intercontinental Exchange has added ESG data coverage to more than 1.5 million mortgage-backed securities.

ESG ratings are finally making inroads into more complicated areas of the financial markets. While millions of data points already exist to rate publicly traded stocks on environmental, social, and governance metrics, it’s been challenging to rate private equity, private debt, mortgages, and other alternative asset classes.

Intercontinental Exchange, or ICE, has added ESG data coverage to more than 1.5 million mortgage-backed securities. The New York Stock Exchange operator, other global exchanges, clearinghouses, and financial technology platforms have expanded their total fixed-income coverage to 3.5 million instruments.

Its ESG platform provides granular, geospatial, economic, and demographic data for residential single- and multi-family and commercial mortgage-backed securities, agency pools, and credit risk transfer pools. The data set accounts for about 95% of the securitized mortgage market in the U.S.

“Investors and market participants have struggled to effectively incorporate ESG considerations for residential and commercial mortgage-backed securities,” said Elizabeth King, president of ESG and chief regulatory officer at ICE. “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 analyzing their current portfolio.”

ICE sources its data directly from public records, corporate filings, and publicly available third-party sources. Its service provides over 550 data attributes and indicators linked to individual securities using ICE’s corporate hierarchy entity data. This linking process gives investors CUSIP-level coverage, thereby helping them to view the data at each individual investment level.

The 550 data points include greenhouse gas emissions, board diversity, workforce equality, benefits, etc. Climate data applies to specific U.S. municipalities, mortgage pools, and related bonds. It helps municipal, and other mortgage market investors estimate climate risk exposure in a portfolio. Typical metrics include heat stress, wildfire, flooding, hurricane, and drought. 

ICE also gathers demographic and socioeconomic data. Social impact scores provide data on the municipal bond and mortgage-backed security markets. They are based on metrics such as education level, type of employment, health challenges, race, affluence, poverty levels, and how much a household spends on housing.

“The scores quantify the potential social impact of a financial investment in a community,” ICE states on its website. “It helps capture the structural challenges that people may face, to help identify targeted investments that can bring resources to [be] vulnerable and marginalized communities – a key input to measuring and addressing progress on social and climate justice.”

ICE also integrates municipal bond reference data with location-specific, anonymous, aggregated workforce payroll data from ADP, a payroll processing and human resources company. This helps investors assess the economic stability and creditworthiness of municipal bond issuers.

ICE classifies impact bonds into green, social, sustainable, and sustainability-linked bonds. It also provides fixed-income sustainable indices that reflect various ESG criteria.

This additional step in expanding its ESG data offering to mortgage-backed securities comes after ICE’s announcement last November that it will increase its ESG data platform to include two million fixed income securities across North America, Europe, and Asia. 

“With the rise of sustainable investing, more and more investors have become focused on incorporating ESG data into their investment research and decision-making process,” ICE noted in November. “However, because of the complexity and size of fixed income markets, which the Institute of International Finance estimates are approximately three times the size of equity markets, many investors and other participants have not been able to view ESG metrics when it comes to identifying risks and potential growth opportunities in fixed income securities.”

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