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DPC DATA-risQ Research Report Subject of Bond Buyer Article

Innovation Editor Lynn Funk explored findings from DPC DATA and risQ's research report, “U.S. Carbon Transition Risk: The Highwire Act of Municipal Credit Impairment and Climate Justice” in an August 30 Bond Buyer article.

New research report says carbon transition risk may outweigh that of pensions

Innovation Editor Lynn Funk’s article highlights some of the research report’s key findings, in particular highlighting that carbon transition risk swamps pension liabilities for some municipal debt-issuing communities.

Other key findings from the research report:

  • Carbon transition risk is both a credit and social impact risk for the municipal market. Investors can and should explicitly incorporate views and data on carbon emissions into risk management and ESG-related decisions.
  • Carbon is a massive financial liability in the U.S., pegged at about $294 billion annually. In the electricity production (EP) sector alone — one of the largest components of the risk to municipal issuers — liability stands at about $116 billion annually.
  • Communities heavily dependent on fossil fuel, and especially those vulnerable from employment, educational, racial and municipal credit perspectives, can and should be proactively targeted by appropriate public and investing capabilities.

Triet Nguyen, DPC’s vice president, strategic data operations, told Funk, “What drew us to this project was finding a way to come up with the methodology to quantify transition risk in dollar terms. It was interesting to at least put a number or estimate on this potential liability and the data show that it is significant. In some cases, the estimated transition liability may even dwarf the reported unfunded pension liability.”

“The real novelty of what we’ve done here is to define the carbon transition vulnerability of each one of the thousands of obligors across the U.S. — both the financial vulnerabilities by using the DPC Data but also the socioeconomic risks using our Social Impact Scores,” said Colin Sullivan, chief operating officer at risQ.

“Being able to look at how municipalities are reducing their carbon liability in the same way they’re looking at pension liabilities is compelling,” Sullivan said. “The carbon transition liability is not a direct obligation to the issuer the same as a pension liability is but it does have an effect on government spending power.”

Visit the Bond Buyer site to read the complete article. You can also download the research report.

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