ICE Data Services is partnering with a company called risQ that is upending how investors manage risk in the muni market with spatial architecture that allows climate risk to be assessed for a precise area at the CUSIP level. We spoke to risQ Chief Commercial Officer (and PhD) Chris Hartshorn to learn more.
This is an interview with risQ. NYSE presents the information for informational purposes, but does not endorse, represent nor warrant the accuracy of the narrative, which relies solely on material provided by risQ.
risQ leverages economic and physical sciences to analyze climate risk and inform and drive climate adaptation. In the solution we’re delivering in partnership with ICE Data Services, we have taken a framework of catastrophe modeling used intensively in the risk transfer sector (e.g. insurance) and deployed this — via a series of advances in geospatial modeling and machine learning — into a data product serving the muni market.
In short, scale and functionality. We are marrying the risQ data set with the ICE Data Services muni bond pricing and reference data offering, the most extensive out there.
Together we are giving this data purpose and connecting it to actual investments at a specific level — down to a 100-meter grid in fact.
Climate-related economic impairment is increasingly being recognized as a clear and present systemic risk, which is only going to increase over time with a changing and more volatile climate. The insurance sector has been progressively reducing and transferring their exposure to climate risk, leaving federal, state and city stakeholders and individual property owners and residents to cover the gap. These represent key components in the revenue streams supporting municipal debt.
Numerous examples already exist in which climate events have impacted the financial health of bond issuers. In the health sector, for example, hospitals have been directly impaired by hurricanes and wildfires resulting in bankruptcy, while others have seen significant revenue impairment from the impact of similar events on their service areas.
Correlation is also emerging between declared climate-related disasters and downstream impact on property value and population in those locations. These are two key metrics in the tax bases that underpin municipal credit quality.
As climate related events increase in cadence and severity, the risk to property and population across general obligation and revenue bonds is critical.
Prior to risQ’s efforts and partnership with ICE Data Services, the data has not been available for investors to quantify this risk and therefore it has not been priced into the market.
Our metrics are built on rigorous science, designed for a financial audience, and are easy to understand, albeit necessarily complex. Additionally, our coverage is comprehensive — we can look at any obligor.
We can provide climate risk data at a very specific level, more precise than at the county and city level. And that’s important because risk can be markedly different for a utility, hospital service area, or education provider in a particular location.
The rigor and accuracy of our platform allows all stakeholders – municipal designers, resilience officers, financial officers, bond investors, insurers, underwriters, ratings agencies, and so on – to make informed, quantitative investment and resilience decisions. More specifically:
There are four fundamental components of risQ’s underlying climate risk modeling platform:
All four of these components are modeled on risQ’s 100-meter grid. This flexible underlying spatial architecture allows for aggregation of comparable, financial climate risk metrics over any obligor’s boundary or service area.
Among other things, we’re already working on outputs and applications for real estate assets and securities including mortgage backed securities, REITs and real estate portfolios. We’re also actively thinking about extension into broader ESG analytics given the breadth of data we’ve already integrated.
We’re excited to see where our capabilities can be deployed and leveraged, and how risQ and ICE Data Services can expand upon our initial municipal climate risk partnership.