S&P Global Market Intelligence's new Sustainability Pricing & Reference Data product seeks to provide investors and is available for global Government, Supranational, Agency, and Corporate (GSAC) bonds and with key information to facilitate investment and monitoring, including instrument screening, portfolio construction, compliance and reporting.
Krishna Shetty and Paige Tan outline how accessing security-level details for corporate and sovereign bonds can sometimes be a challenge for the investment community and why there is a growing need for additional transparency in this space.
Environmental Finance: What challenges are you trying to overcome with your new offering for Sustainability Bond Pricing and Reference Data?
Krishna Shetty: A specific challenge we're trying to address is a lack of transparency or availability of information for investors in sustainability-related securities in fixed income.
There are additional considerations to take into account for compliance and portfolio monitoring for investors in sustainable fixed income securities. As such, we have launched our Sustainability Bond Pricing and Reference Data product to provide transparency into the terms and conditions for the individual securities. The dataset currently covers about 12,000 securities in the corporate and sovereign bond space – and gets updated every day as new issues come to market.
We also provide fields that include information on labelling, second-party opinions, use of proceeds, alignment with industry standards, and up-to-date pricing. Our pricing team provides hourly and end-of-day updates for these securities. For liquid securities, we're able to provide near real-time updates.
For sustainability-linked bonds, we are also able to provide information on key performance indicators and Sustainability Performance Targets, and track if those targets have been met.
This is an evolution of our coverage in the fixed income space where we've been providing pricing and reference data on about three million securities, across corporate, and sovereign bonds, municipal securities, credit default swaps, bank loans and securitised products for over two decades for certain asset classes.
EF: How does your offering provide further granularity to make better informed decisions on ESG investments?
Paige Tan: By combining bond pricing and sustainability reference data, we can provide more detailed insights. For example, one popular research area is the 'greenium' experienced by bond issuers that have issued both the conventional and sustainability themed bonds.
This assessment can be enriched by combining entity-level environmental, social and governance (ESG) scores to further differentiate between bond issuers based on the pricing performance of their respective bonds. For example, suppose a bond issuer is signalling a stronger ESG score with a greater focus or implementation of climate risk reduction and long-term positive impacts for the social goals. In that case, bond prices could demonstrate larger greenium than those from an issuer that share the opposite, as investors incorporate ESG factors as part of their investment performance analysis.
EF: What is driving the need for this level of granularity for investors?
KS: The sustainable bond market is still developing and market participants across the globe have indicated a need for more transparency. That's where a product like ours comes in. When it comes to corporate and sovereign bonds, there are over 300 fields to consider in reference data. For sustainability bonds, there are additional terms and conditions that provide transparency to investors around the varying characteristics of a bond that could drive investment decisions. For pricing, you also need to have the right data to price these securities, and, you need to have the right technology to consume that data. Finally, we have local analysts with sector and region-level expertise who understand the market context for these securities.
PT: Reporting and disclosure is a big concern for the market. This can be categorised into two broad themes; disclosure requirements stemming from sustainability investments and those focused on sustainability risk management. The initiatives and guidance related to these themes share a similar goal of providing greater transparency and more informed decision making in sustainability finance.
As a result, the market now requires more structure and consistent data for compliance and reporting purposes. What we are trying to solve with this offering is to provide that structure, with consistent data fields at the instrument level, in combination with our pricing data and insights.
EF: What regional nuances or trends are you observing?
PT: Europe is often viewed as the front runner, but in the last 24 months, market participants have generally seen synchronisation efforts towards similar disclosure requirements, taxonomies, and risk management in the APAC region. The challenge for APAC is that it's quite fragmented – so is data availability and comparison.
KS: In North America, it is still primarily returns that are driving investment decisions as opposed to whether they're sustainable investments or not. The North American market is lagging as compared to Europe and Asia when it comes to sustainability investment, but it probably is a matter of time before the market catches up.
EF: What priorities and challenges are you looking to address next?
KS: Climate risk can be divided into transition risk and physical risk. We're looking at both areas to see where we can help. It is important to consider the transition trajectory of the issuer and their net zero targets, to ensure that these match up with the use of proceeds of the bond. Social factors are also increasingly important in various jurisdictions, and we see companies leverage our Corporate Sustainability Assessment to benchmark KPIs such as board diversity and human rights governance, we see an increasing trend to consider the alignment of the sustainability issuer and bond level, within the context of the issuer's industry and region. The energy transition will play out differently, depending on the corporate's exposure to various physical and transition risks. For example, we recently introduced a municipal bond physical risk product.
We're also gauging demand from customers around other fixed income asset classes to see if there is a need to provide solutions in those areas for Sustainability Bond Pricing and Reference Data. As a firm, we have a group called Sustainable1 that develops sustainability solutions and matches customers with the products and insights from across S&P Global's divisions to help meet their unique needs. Sustainable1 will continue to meet the needs of our customers as the market evolves, both on physical and transition risk.
Krishna Shetty is an Executive Director – Data & Insights at S&P Global Market Intelligence based in New York and Paige Tan is a Director – Data & Insights at S&P Global Market Intelligence based in Hong Kong.
For more information, see this page.
