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Frequently Asked Questions

Getting Started

WHAT IS KESTREL ESG DATA?

Two decades of consulting in public finance provides us with deep, nuanced understandings of how local and state governments finance and deliver public projects. Now we’re using this skilled practitioner’s lens to understand complex activities financed with muni bonds and provide meaningful, material insights on their ESG characteristics. Our data reveals if bond-financed activities are aligned with sector-specific best practices to address greenhouse gas emissions, and the presence or absence of other beneficial environmental and social impacts. We follow a robust and transparent methodology and summarize our findings in original, easy-to-understand ESG data that’s both qualitative and quantitative.

We’re currently focused on municipal bonds in the primary market with par values greater than $20M. We also offer portfolio evaluation services.

WHAT'S INCLUDED?

Kestrel ESG Data includes:

  • Four numeric scores, each on a scale of 1-5, where high scores reflect exemplary bonds with positive impacts:
    • Environmental (E)
    • Social (S)
    • Governance (G)
    • Total weighted ESG score
  • Qualitative description of the bond’s use of proceeds and related environmental and social benefits
  • Alignment to United Nations Sustainable Development Goal (SDG) Targets
  • Identification of potential “flashpoints” for the repayment of the bond’s principal and interest
  • Identification of whether the bond is eligible for designation as a green, social or sustainability bond
  • A climate risk disclosure score which assesses the adequacy of information provided in offering documents

Kestrel ESG Data is 100% original and independently developed by our team of analysts who follow a robust evaluation methodology to assess each bond by evaluating project impacts and key project details against industry standards. Our data is backed by the quality and integrity we have brought to our government clients over the last 20 years.

POSSIBLE USES

  • ESG Integration in Bond Trading – Identify bonds that meet your ESG criteria to support buy/sell decisions
  • ESG Integration in Portfolio Evaluation – Understand and communicate a portfolio’s overall ESG impact with aggregated bond-level ESG data and a portfolio ESG impact narrative
  • Impact Reporting – Communicate the true ESG impact of your bond holdings with our use-of-proceeds-based UN SDG Goals and Target alignment
  • Thematic Investing – Identify bonds that qualify for specific themes, like Clean Energy, Access to Education, and Affordable Housing
  • Identify unlabeled Green/Social/Sustainability bonds – Identify unlabeled but eligible bonds in the primary and secondary market

HOW DOES LICENSING WORK?

We love to collaborate with market participants who share our vision to support sustainable finance. Contact us to discuss your goals, learn more about licensing, and schedule a demo.

HOW IS DATA DELIVERED?

We understand that different clients need data in different ways. We support delivery via API, as well as more traditional formats. Need something else? Contact us to discuss customized data-delivery solutions.

DOES KESTREL OFFER CUSTOMIZED DATA SOLUTIONS?

We love to collaborate with market participants who share our vision to support sustainable finance. Contact us to discuss your goals, learn more about licensing, and schedule a demo.

Our Approach to ESG

WHAT'S UNIQUE ABOUT KESTREL SCORING?

We believe that in order to truly advance sustainable finance, market participants must be able to differentiate between ESG appearance and reality at the bond level. Is there real environmental benefit? Is this investment climate-aligned or not? Is it equitable? These types of insights allow investors to make buying decisions based on the true impact of a particular activity, and enable better reporting on impacts.

To grow transparency in the municipal marketplace, we take an innovative approach by assessing each bond individually. Our analysts follow a robust evaluation methodology to evaluate project impacts and key project details against industry standards. We not only identify the environmental and social benefits of bond-financed activities, but also the degree to which the issuer has made this information readily available.

HOW DOES KESTREL EVALUATE BONDS?

Our analysts follow a robust scoring methodology that includes sector-specific evaluation criteria. These criteria were developed by incorporating real-world best practices in sustainability, social equity and climate-action. We call these criteria “material factors” because they parse out the important aspects of bond-financed activities that truly drive impact in each specific sector.

When we review bonds, we identify whether these sector-specific best practices are present in bond-financed activities. The presence or absence of material factors increases or decreases a bond’s score, to ultimately separate leaders from laggards.

WHY SECTORS AND SUB-SECTORS?

ESG factors vary greatly depending on what sector we are talking about. For example, best practices for electric utilities differ greatly from best practices in schools. ESG factors are also nuanced within a sector, and our methodology supports this “sub-sector” granularity. As an example, when assessing education financings, we follow different criteria for K-12 education than for higher education.

WHAT IF FINANCED ACTIVITIES CROSS MULTIPLE SECTORS?

Our methodology supports multi-sector and/or multi-industry scoring.

HOW DOES KESTREL APPROACH TRANSPARENCY?

We strive to be transparent with our evaluation approach. Our sector-specific material factors for evaluating bond-financed activities are grouped into categories such as “Renewable Energy” or “Ecosystem Restoration.” These categories align with the five overarching goals which underscore Kestrel’s evaluation approach to communicate what’s material in bond-financed activities:

  1. Limit global warming and its related effects
  2. Integrate resilient and sustainable design features
  3. Preserve, enhance, or restore natural capital
  4. Promote an equitable society
  5. Ensure proper disclosure

For more information on our approach, see our methodology FAQs or contact us to request our comprehensive scoring methodology document which includes a complete list of categories.

Data Methodology

UNDERSTANDING KESTREL ESG DATA

Kestrel ESG Data includes separate environmental, social and governance scores for each bond. Each score is on a scale of 1 to 5, with 1 being a low score and 5 being a high score.

  • A bond’s environmental score (E score) reflects the presence or absence of material factors that advance three Sustainable Finance Goals: Limit Global Warming, Integrate Resilient and Sustainable Design Features, and Preserve and Restore Natural Capital. We have identified industry-accepted best practices to advance these sustainable finance goals within each industry sub-sector. Bonds with high environmental scores finance activities that directly or indirectly reduce greenhouse gas emissions, incorporate sustainable design features, and/or incorporate nature-based solutions.
  • A bond’s social score (S score) reflects the presence or absence of material factors that indicate alignment with the goal of promoting an equitable society. We look for sector-specific best practices that foster improved access to essential services, affordable housing, food security, and/or socioeconomic empowerment. In assessing the social benefit characteristics, we consider the primary purpose of the bond-financed activity or program as well as the population it serves.
  • A bond’s governance score (G score) is a reflection of the issuer’s transparency and disclosure when it comes to the bond-financed activities. We assess the degree to which the issuer has made information about bond-financed activities readily available. Some of the best practices we look for include: clearly defined project sector(s), project location(s), purpose, rationale, and budget. The G score also serves as a degree of confidence score on the E score and S score.

WHAT IS THE WEIGHTED SCORE?

A bond’s Total Weighted ESG Score is a weighted average of the bond’s E, S and G scores. This weighted score puts the bond’s ESG characteristics in a broader market context, allowing you to compare bonds within and across sectors. (For example, you can compare a school bond to a hospital bond.)

Weighting is assigned based on where the sector has the most opportunity for impact, and is based on academic research in environmental and social sciences, practitioners’ expertise, and Kestrel’s internal committee review. For example, in assigning weights to the wastewater (sewer) sector, we consider the robust regulatory frameworks in which US local governments must operate, as well as the understanding that access to basic sanitation is nearly universal in the US, with several notable exceptions.

Weighting does not inherently prioritize certain sectors. The quantitative or qualitative impact of a bond depends on many factors, including the sector, size, and local context.

HOW DOES KESTREL ASSIGN UN SUSTAINABLE DEVELOPMENT GOALS (SDGs)?

We map a bond’s impact to the UN SDG Targets to provide additional insights and transparency about the sustainable benefits of the intended use of proceeds. The UN SDGs include 17 broad goals for sustainable development, and each Goal has underlying sub-goals or “Targets” that are more detailed actions necessary to achieve a particular Goal. For example,  UN SDG Goal 4 “Ensure inclusive and equitable quality education and promote lifelong learning opportunities for all” has ten Targets. 

WHAT ARE FLASHPOINTS?

When assessing a bond, we examine the source of funds for the bond’s principal and interest payment. Sources of repayment that are derived from potentially controversial sources of revenue are flagged as “Flashpoints” in our data. A source may be considered a red-flag or a point of controversy by broadly accepted social, environmental, or moral standards, by certain investors and/or may include mixed sources where a portion of repayments may be sourced from flashpoint enterprises. While Kestrel provides Flashpoints as part of the data feed, the data allows investors to decide if they want to act on this information.

A few examples of potential flashpoints include: mining, tobacco, lottery, casinos and fuel tax.

IS A COMPREHENSIVE METHODOLOGY DOCUMENT AVAILABLE?

Yes! Please contact us.

Quality Control and Assurance

HOW DOES KESTREL ENSURE THE INTEGRITY AND QUALITY OF ESG DATA?

Integrity is a core value of our company, and we always strive for excellence. Our analysts follow strict procedures, guided by our proprietary software to ensure a consistent scoring methodology. We also adhere to a comprehensive set of best practices designed to remove bias, ensure checks and balances, and consistency in our ESG data. Our robust quality assurance and quality control procedures employ both automated methods within our software as well as analyst committee reviews to ensure data integrity.

HOW DOES KESTREL MAINTAIN INDEPENDENCE?

Kestrel is proud to be an independent ESG data provider and observer in the fixed income market. We are not compensated by issuers for ESG evaluation, and issuers are not involved in the evaluation process. Our evaluation is conducted independently by Kestrel ESG analysts using pre-defined sector-specific criteria.

We maintain an ongoing dialogue with market participants to ensure that our data is relevant, meaningful, compliance-ready and up-to-date. In certain situations, it is acceptable for Kestrel ESG employees to reach out to clients to obtain more information on the bond being evaluated. However, the client is not involved in the ESG evaluation process.