In July 2022, ICE expanded its climate risk offering with the acquisition of Urgentem, a provider of global corporate emissions and climate transition data. Girish Narula, head of sustainable finance at ICE, outlines how the two firms have harmonised and developed their offerings.
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Environmental Finance: How has the Urgentem corporate emissions and climate transition offering evolved since the acquisition by ICE?
Girish Narula: Given ICE’s focus on fixed income we have expanded our offering in that asset class. While Urgentem had an extensive fixed income offering, we were primarily focused on public and private equities. The number of securities we now cover, especially in fixed income, has grown exponentially since the acquisition. The other area of focus has been the integration of reference and ESG data within the wider ICE sustainable finance team: including the index products and the environmental markets business.
EF: How has your transition planning offering changed in line with wider market trends?
GN: Three years ago, when we built our net-zero tool at Urgentem, clients wanted climate scenarios. Now, the conversation has moved on to the nuts and bolts of the scenarios, such as which scenario works for what sectors and what are the areas that have been enhanced or improved.
We are not just providing the tools that allow companies to evaluate net-zero plans for themselves and their portfolios but are going a step further by looking at how credible those transition plans are. Our clients want to know if companies are living up to their transition commitments. And, if not, have they set new targets? This is the added value that we are offering our clients now.
EF: What are some of the challenges involved in the evaluation of climate transition plans?
GN: One of the biggest challenges is consistency in reporting of data. A target, if done credibly, should not be a singular number. You must have a short-term target, a mid-term target, and a long-term target. Then you must also evaluate if the reporting is consistent with your baselines and what Scope emissions are covered in the target.
We then rationalise that data and clean it so that it is comparable. We also compare it with the historical emissions information that we have been collecting over the past 10 years. We then track company progress against scenario projections. We provide all these things to the clients so they can make their own decisions.
EF: What fixed income products are you working on?
GN: We have started looking at use of proceeds, their associated KPIs and any related reporting. We are also working on a project where we assign a dollar value to those KPIs. We are not just looking at tons of emissions saved but what that KPI means in terms of a dollar amount of impact. That does involve some assumptions but, if applied consistently, we are able to give our clients the ability to compare bonds and their impact.
EF: How do you manage the challenge of inconsistency in reported data?
GN: One thing that we believe sets us apart from our competitors is our inference modelling. That was what we used when we carried out climate stress testing with the European Central Bank. We take a lot of pride in our inference modelling because it’s transparent, granular, and continually evolving. We are now applying those same modelling techniques to the impact bond space as well. For impact bonds, we look at whether there is annual reporting or if it follows any market guidelines – such as the ICMA Guidelines.
We also look for consistency. Then we take the good quality data, and we use that to estimate in areas where there’s no reporting. Whether the data is estimated or reported, we provide clients with that transparency so they can see what is based on estimates and what is reported. We have been doing this for 10 years in the emissions space, so we are comfortable with how the models have evolved.
EF: What is next for your team at ICE?
GN: Now that we are a part of ICE, we can interact with other areas of the business. We are working with the ICE Index team to incorporate our data into some of their products. We are also working closely with the Environmental Markets team to see how the net-zero transition planning can be incorporated for clients interested in carbon credits.
EF: What recommendations do you have for your clients as they develop their transition plans?
GN: The most important thing is to have realistic transition plans and be as open and transparent about what is achievable and what is not. Everyone recognises this is a challenging thing to do but that shouldn’t deter you from being optimistic about it.