The announcement on Monday of Institutional Shareholder Services Inc. (ISS) acquiring the leading municipal bond ESG scoring and ranking company, ACRe Data, illustrates not only the continuing consolidation in the market for ESG ratings and assessments, but an expanded interest into the large municipal sphere in the U.S.
According to Monday’s announcement, ACRe provides ESG rankings and scores on approximately 3,140 U.S. counties, 29,000 cities and towns, 14,300 school districts, 8,700 opportunity zones, and all 50 states alongside underlying data dating back to 2009. Since 2015, ISS has been bulking up its ESG offerings, by means of at least five acquisitions (refer to Table 1).
At $3,862.2 billion in assets per the Federal Reserve as of 2019, the municipal market in the U.S. is an attractive area of focus. According to data compiled by Sustainable Research and Analysis, there are at least 97 funds/352 sustainable mutual funds/share classes offered by 22 firms with $109.7 billion in assets at year-end 2020. These funds largely employ ESG Integration or ESG Integration-Consideration approaches to sustainable investing*. The entire segment represents only 12.5% of the $876.5 billion in total long-term municipal mutual fund assets at year-end 2020. As for ETFs, there were only five sustainable municipal ETFs on offer at year-end 2020, with combined assets of $1.6 billion, representing just 3% of the $55.5 billion in municipal ETF assets under management (refer to Chart 1).
*Definitions: ESG Integration-Consideration-The fund may integrate ESG. ESG Integration-The fund will integrate ESG and may also engage with stakeholders. ESG Integration-Mixed -Core strategy consists of ESG integration, but exclusions, impact or thematic approaches may also be employed. Source: Promoting the Continued Growth and Development of Sustainable Investing in US Mutual Funds and ETFs: A Three-pronged Proposal to Address Misunderstanding and Confusion that Have Arisen in the Sector. Michael Cosack and Henry Shilling, May 2020.
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