DPC DATA has 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 more than 25,000 muni obligors.
MuniESG Solutions was created in response to demand from DPC’s clients for climate risk data as the key component of a market-wide trend toward sustainable or ESG investing, said Ken Hoffman, DPC president and Triet Nguyen, DPC vice president of strategic data operations. DPC is using data from SRS, a spatial finance firm whose methodology integrates geospatial data into investment and asset risk models.
The launch of MuniESG comes as the focus on and interest in ESG from nearly every public finance participant — from investors to issuers to regulators — has grown.
“While ESG concerns are still evolving in the municipal market, there’s widespread consensus on the importance of climate risk exposure,” Hoffman said. “The potential use cases cut across all segments of our market, from issuers, sell-side capital committers, to institutional investors and market regulators.”
The data MuniESG uses includes both physical and carbon transition risk scores for more than 90% of local governments and school districts in the U.S.
The scores are based on “Scope 1” and “Scope 2” carbon emissions estimates developed by SRS. These data are tied to financial ratios that combine climate data with DPC’s financial data.
Nguyen said ESG factors cannot be looked at in a vacuum and MuniESG provides context for investors seeking this type of data.
“Since both financial data and climate data will be available on the same integrated platform, our users will be able to analyze climate exposure in the context of any municipal issuer’s overall fiscal resources,” Nguyen said.
In Scope 1, the focus is on carbon emissions from energy production, transportation, and municipally owned solid waste facilities. Scope 2 emissions estimates focus on local household consumption of electricity, steam, heat and cooling.
By quantifying these factors, they translate into risk scores based on one to 10, with one being the best and 10 being the worst on both the state and national levels. They look at a particular issuer’s carbon transition liability per capita, as a percentage of median household income, of assessed valuation, of total revenues and of net capital assets. The issuer is then given an environmental SRS Risk Score, the SRS Environmental Score and a Climate Impact Score. It also is given a Social Vulnerability Score and Community Resilience Score.
Using these metrics, a New Jersey school district issuer with a population of 31,367, median household income of $170,798, Scope 1 and 2 emissions estimate of 53,000, carbon transition liability of $2.226 million and a social cost of carbon level of $42/ton would have a SRS Risk Score of 4 statewide and 3 nationwide, an SRS Environmental Risk Score of 9 statewide and nationwide, an SRS Climate Impact Score of 5 in both, a Social Vulnerability Score of 3 and 2, respectively, and a Community Resilience Score of 6 for both state and nationwide.
MuniESG will be available as a stand-alone data feed as well as an add-on component of MuniCREDIT Online, DPC’s web-based financial data lookup application.
“In either case, DPC’s ground-breaking MuniCREDIT Mapping methodology enables direct mapping of climate risk and any future ESG scores to municipal obligors and bond issues at the individual CUSIP level,” the firm said.
“Municipal investors will now have access to a global data set at a spatial level to aid them in accurately identifying ground-level conditions, and can factor this into their investment process,” said Raymond Clarke, SRS chief product officer.