High-tech climate experts forecast climate risks for bond investors.

The new companies are competing to develop algorithms that predict how natural disasters can hit cities, industrial parks, and even private buildings. That could be even more significant because of the recurrence of wildfires, floods, hurricanes, and droughts that are causing debt to municipal, corporate, and mortgage lenders.

A Boston-based company was launched in 2016 by a handful of scholars to market such geospatial data to Wall Street. The company has created a digital grid that divides the US into 100 meters by 100 meters of waste, predicts weather events in each square and assigns related risk points to the affected bonds.

Ivan Kodra, the company’s 34-year-old chief executive, said he had dropped out of the academy after trying to work as a hip-hop producer in his teens.

Climate risk cartographers are attracting money. Financial-Services Mass Intercontinental Exchange Inc.

In December, he bought Res for an undisclosed sum and renamed it ICE Data and Innovation Impact Group, although it is still widely known by its original name. Credit Ratings Moody’s Organization Corporation

He bought a Morkingstar unit for the same company and Sustainalics for Four Twenty Ink. Ink.,

He has partnered with XDI, a rival company to assess climate risk in corporate bond markets.

Geospatial Analysis Bonds can help local, social and management, or ESG, investment product managers better evaluate the information provided. Greenwashing – or about ESG supplies – has become a hot topic in property managers, and the Securities and Exchange Commission introduced new rules in May to regulate the market for ESG accounts.

Andrea Blackman, head of Modi ESG Solutions, said: “Satellite data provides additional insights to identify property and location information, verify claims and measure impact.

Sales for risQ ​​have grown slowly, largely because the company does not have a large enough event or event chain to trigger bond defaults. Most bond issuers use private insurance to help them navigate after an accident, and many investors do not see the need for a subscription. A.D. The wildfires that engulfed California in 2018 and 2021 resulted in PG&E. Corporation

In order to seek bankruptcy protection, it must still force the municipality to reject it.

That could change. Paradise Camp, California, which was damaged by the 2018 Camp Fire, has announced in March that one of its agencies could pay a $ 4.8 million bond next year. The city She earned $ 219 million from one settlement in 2020 but said she plans to rebuild that infrastructure instead.

Even if small fractional bonds suffer from such an event, the risk of damage can be significant. According to SIFMA, about $ 4 trillion in municipal bonds such as the Municipal Insurance Board, as well as $ 10 trillion in corporate bonds and $ 12 trillion in mortgage-backed bonds are the largest in the US.

If global temperatures rise by three degrees Celsius, the product premium – a risk factor that reflects borrowing costs – could more than double, MSCI Inc.

He said in a November report. Bond prices decrease when products are added. Between 27 percent and 38 percent of U.S. companies could lose more than 25 percent of their market value due to climate change or carbon emissions, the report said.

After his hip-hop dreams came true, Mr. Kodra began studying mathematics with a bachelor’s degree at the University of Knoxville, Tennessee. “I’ve got a list of average wages for beginners in business programming and hiring fashion,” said Mr. Kodra, who plays a competitive basketball game four days a week.

His interest in business ethics led him to pursue a degree in Interdisciplinary Engineering at Northeastern University, where he began researching the risk of climate change. He wanted to know how long it would take for a 50-year flood or a 20-year flood, once considered a 100-year flood.

Mr. Kodra created a freelance risQ ​​with funding from the National Science Foundation and a Boston start-up show. There he searched for John Sheffield, who had been baptized in the public database.

Mr. Sheffield They joined ResQ in 2017 and initially built a geospatial database for municipal borrowers, from cities and towns to school districts and sewerage authorities. The company compiled climate data on data such as tax revenues, property prices, average education, health and income levels.

“Before a storm like ours appeared, when a hurricane came, investors used Google to find out the path of the forecast and then find out what was at stake,” says Mr Kodra.

Frequently, the risQ ​​model shows that bond markets are not discriminated against among the most diverse municipalities. The school district near California Wine has more than five times as much wildfire in the school district in just a few hours north of Sacramento, but their bonds are traded for the same product, according to Ricky’s study.

Some financial managers are registered with the product to avoid such traps but many see it as unnecessary expense. When lending money in bond markets, investors rely on credit rating agencies such as Moody’s and S&P Global Ratings. According to someone familiar with the matter, RisQ’s annual subscriptions cost six digits.

“We’ve seen natural disasters shut down local economies, and we haven’t seen a default,” said Robert Amodeo, head of the Western Property Management Municipality..

Private insurers and payments from the Federal Emergency Management Agency and state funds have saved municipal bond investors from bankruptcy, Mr Amodeo said.

Using 1.2 billion records from various databases, the company expanded its coverage and increased mortgage-backed bonds last year, Mr Sheffield said.

He said customers want to know if there is a severe weather that will destroy their bond-related assets, which could lead to landlords getting out of debt. They fear that declining climate change could reduce home prices as sea levels rise and wildfires spread in others.

The company, which now has about 30 customers, has experienced an unexpected increase in fund managers who want to ensure the impact of ESG on their investments. Individuals and institutions need to invest their dollars, such as reduced carbon emissions, lower wealth disparities, and improved access to health and education.

“ESG reporting can be challenging, but in the case of RISQ, it is a legal process based on facts and analysis,” said Marty Manyon, co-founder of TD Securities Inc. Automated Business.

A.D. In 2020, after the assassination of George Floyd, money managers began using risQ’s data to identify municipal bonds to buy racial equity, Mr Kodra said. Recently, some have asked the company to identify mortgage bonds in high-income areas. Such purchases should increase bond prices and reduce the cost of borrowing for underserved communities, Mr Sheffield said.

“Wildfires, floods and hurricanes pose a credit risk, but what most people hope to do when they invest their money in ESG products is to have a positive impact,” Mr Codra said.

Some investors think of a time when municipal suppliers will test their growth by correcting long-standing racial injustice. The Robert Wood Johnson Foundation, a charity focused on health, has donated $ 4 million this year.

Next, RISQ is working on expanding its European geospatial database and finally to national government bond markets around the world.

“In the long run, we want to give every investor a uniform ESG image, regardless of the property segment,” Mr Sheffield said.

– Heather Gillers

Contributed to this article.

Write Matt Wirz at matthieu.wirz@wsj.com

Corrections and highlighting
The company Res Q is acquired by InterContinental Exchange Encryption. The previous version of this article erroneously claimed that it was captured by International Exchange Inc. (edited July 10).