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Five Ways to Use

ICE Climate Risk

ICE Climate Risk applies geospatial climate, economic and demographic data to specific municipalities and securities. This new level of transparency helps municipal market participants make informed investment decisions on bonds or securities that may have high climate risk exposure.

What can help identify climate risk exposure across municipal bond cohorts?

ICE Climate Risk provides actionable insight that may not be captured in other standard data attributes. Figure 1 below shows an example of climate risk data for anonymized municipalities in California, Florida and Texas. In California, School District E is in a similar ballpark to its peers in the state when it comes to its bond characteristics like coupon, call and rating. However, it is ranked high for wildfire risk against its peers both within the state’s school districts and against other school districts nationally. Market participants do not appear to have factored in the elevated wildfire exposure for School District E relative to its peers.

Looking at Florida, total climate peril across all climate event types for Florida Hospital System B has higher overall climate risk relative to its peers within its state, with a risQ Score of 4.9 and a 42.4% cumulative property value-at-risk (VaR) by its call date in 2029. It has one of the riskiest hospital systems both in Florida and nationally. Despite this, market participants do not appear to factor in climate risk for Hospital System B as bond characteristics appear similar across its peers. In Texas, again looking at total climate peril, Utility Revenue Bonds from Municipality A and B have very different climate risk profiles.

ICE Climate Risk Use Cases Chart 1

Valuable for: traders, portfolio managers, risk managers and credit analysts

What can help mitigate my portfolio for climate and economic tail-risk?

The municipal market has historically been lower risk than other asset classes, making uncertainty from exogenous shocks such as natural disasters a major concern for investment managers. While municipal portfolios are typically diverse, returns on individual municipal bonds are generally homogeneous. This means that a surprise shock performance of just a couple bonds in a municipal portfolio can produce a significant impact on the performance relative to an index, which tends to have many more positions.

By using ICE Climate Risk metrics, an asset manager may be able to improve their portfolio construction and maintenance by reducing the adverse impacts of natural disasters and ensuing economic shocks on their returns. risQ Score can be used at the security-level to decide which bonds to purchase or sell. The Score can also be used when setting up a portfolio’s rules, or when managing performance against a benchmark index. Finally, risQ Score can be aggregated at the portfolio-level for investor-facing summary statistics, or as the chart shows below, to compare portfolios against each other and against appropriate index benchmarks.

ICE Climate Risk Use Cases Chart 2

Valuable for: portfolio managers, risk managers

How can I help municipalities finance climate risk mitigation and adaptation?

The International Capital Market Association (ICMA) published “The Green Bond Principles (GBP)” in June 2018, which includes climate change adaptation as an eligible Green Project category.1 In Figure 3, ICE Climate Risk metrics are overlaid onto a map of two states that have different risk profiles when it comes to inland flooding. Using risQ Score, municipal market participants can better serve issuers by helping them identify Green Bond-eligible financing opportunities and prepare for future infrastructure needs of the municipalities they work with.

ICE Climate Risk Use Cases Chart 3

Valuable for: public finance, underwriting, financial advisory, bond counsels and ESG index creators

How might climate disclosure help increase muni market transparency?

Most market participants engage in credit analysis at the issuer level. One use-case for this credit analysis is in origination of new debt. ICE Climate Risk metrics can help prepare an issuer for questions they may face from investors who want to know both the issuer’s climate risk profile in terms of property value-at-risk and GDP-at-risk. Knowing an issuer’s climate risk profile can help those involved in the origination process structure municipal new issuance innovatively to mitigate for when climate impact could be felt by the municipality. Additional climate risk disclosure helps improve market transparency. Enhancing issuer profiles with climate risk metrics can help credit surveillance get ahead of potential economic challenges associated with climate change, including potential longer term population migration effects.

ICE Climate Risk Use Cases Chart 4

Valuable for: public finance, underwriters, municipal strategy, municipal advisory, issuers, credit analysts and ratings agencies

How can I compare the climate risk of issuers at the new issue stage?

risQ Score allows users to easily compare issuers against one another. Metrics are tied to the issuer’s main market identifiers, even prior to sale. Adding these metrics to augment a municipal new issue calendar helps investors compare bond issuances coming to market before deciding which deals to put orders in for new issue allocation. As the investor community starts to incorporate climate risk into their portfolio management strategy, the visibility of climate risk metrics at the new issue stage will become important.

New Issue Calendar Examples: 3/29/21 — 4/2/21

  • A 3.7 or higher on any metric, or a 3.0 for the overall risQ Score is notable
  • Easily compare Issuers against one another by state, cohort, maturity, obligor, etc.
ICE Climate Risk Use Cases Chart 5

Valuable for: public finance, underwriters, municipal strategy and portfolio managers

Interested in ICE Climate Risk?


1 Green Bond Principles (June 2018) - International Capital Markets Association:

Glossary of Terms (for Figure 1):

Peril: Climate-related event risk type.

Cumulative Property Value-at-Risk % (To Call): This sums up values for property value at risk due to the defined peril, and expressed as a percentage of all property value until the stated call date of the bond.

Cumulative Property Value-at-Risk % (To Maturity): This sums up values for property value at risk due to the defined peril, and expressed as a percentage of all property value until the stated maturity date of the bond.

risQ Score: A 0.0 - 5.0 representation of climate risk due to the defined peril, where integer increases represent an approximate doubling of risk for a given obligor type and year. Scores can be used to compare securities linked to different geographic locations and of geographic scales, but not across time (year) or obligor type.


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