S&P Global Inc. (SPGI) Earnings Call Transcript & Summary

Hello, and good afternoon, at least for most of you, hopefully, it's early afternoon. It's Jeff Silber. I'm the business services analyst here at BMO Capital Markets. And I'm thrilled to present our next fireside chat with Chip Merritt, who is the Senior Vice President for Investor Relations at S&P Global, SPGI. Chip, really thrilled that you're with us. Also, sorry to say that I know you're going to be leaving the company shortly. I just wanted to thank you. You've been extremely helpful to me over the past probably 10 years or so that we've interacted and you will be sorely missed. So thank you for all your help.

Well, thanks. Thanks for having me and thanks for the kind words. It's been a good run. So I've really enjoyed it. So all things end.

Great. Yes. I guess they do. So the way the format is going to work, again, it's a fireside chat format. I've got a list of prepared questions that Chip and I will discuss. We do have the opportunity to take questions from the audience. I think the instructions were up on your screen. If you just hit the menu icon and submit your question to me, I'll be happy to read it and we'll be reading it anonymously. So you don't have to worry about that. I'm assuming that most people on this call are familiar with the company, but in case for those that are not, can we just get a high level overview of what S&P Global does?

Sure. So obviously, we've got the large 4 segments, the Ratings business, which is one of the 2 major rating agencies in the world. We've got our Indices business, which is, once again, one of the 2 major indices businesses in the world. We've got our Platts business, which is one of really 4 players in pricing commodity prices around the world. And then we've got the Market Intelligence, which is one of the major, 4 major systems in the world that everybody on Wall Street uses and many people in academia, corporations, et cetera, will also use that kind of data. What I think makes us particularly unique is the benchmark nature of really 3 of our 4 businesses. When you're putting out something like a ratings from S&P or you're putting out the Brent oil price or the S&P 500, those are benchmarks and they're widely used throughout the financial community and they're really hard to usurp or overthrow. And so we nurture our benchmarks, the 500 evolves, not the same companies that were in there 10 years ago or 30 years ago, the makeup of the Brent oil price evolves, so we nurture our benchmarks along the way and then we create new benchmarks. And that's really, I think, the key to the whole company. The other key to the company is proprietary data and data. I use the word proprietary, isn't really proprietary, some that's not. But it's hard to collect and cleanse and standardize and it's massive amounts of time series. That's really invaluable that you could find it all in one place. And really, the strength of the company also is, we have these 4 businesses and they interrelate. So we key an income statement one time and our Ratings business will use it for their ratings work and our Market Intelligence business will use it to provide that income statement to, fundamental data to our customers, whereas other companies only have pieces, they'll each have to key that in. So it really creates economies of scale.

Okay. That's great. That's a great overview. We're going to talk about the pending merger in a second, but maybe we can drill down just into your existing businesses first. And we'll start with the biggest segment, which is your Ratings business. And obviously, the pandemic had a sizable impact on the business. We had a big year of debt issuance last year. It has slowed down this year, but not nearly as much as I think people thought. Can we talk about from your perspective what's been happening over the past couple of years within that business segment?

Yes. It's really been remarkable to watch. One of the biggest fears in the company has always been, well, what's going to happen to us in the next recession? What's going to happen in the next downturn? And that's been a fear that's been lingering for 10 years since the financial crisis. But it was really nice to see that investors can see exactly what happened in the downturn last year, right? Companies, when faced with a threat to their business, the first thing they will do is tap their lines of credit and pull all the cash in they need. And the second thing they'll do is they'll term it out into a bond because that's the most efficient thing to do. So all the investment-grade companies came pouring into the market to do exactly that, which created a massive amount of issuance. Now in those early days, those high-yield companies or leveraged loan companies couldn't do that. It couldn't access the markets because no one wanted to reach out to them at that risk level. So that was really what characterized last year was a surge of investment grade. As the year progressed, the less creditworthy companies were able to come into the space. Now that you get into this year, it's a completely different dynamic. Now investor search for yield has been so pronounced. They're pushing companies into the space because they don't want to buy a bond from a company and get 0.5% rate from some AA, right, Google or something, Alphabet. And so they're searching for yield, which enables lesser credit companies to come in and then you've got all the M&A activity, which just adds on fire. And so that creates all sorts of new debt. So last year was characterized by investment-grade companies shoring up balance sheets. This year is characterized by investor search for yield and the M&A activity. The last point I'll make is that last year was a very weak year for structured credit. And this year it's incredibly strong. A lot of it just making up for last year. The comparisons are very easy, but CLOs are on fire because leveraged loans are on fire. And they feed that CLO business. So yes, it's kind of remarkable. Every year is a little bit different.

Yes. So talked about '20, talked about 2021. What are your expectations for debt issuance for 2022?

Well, the research group within Ratings puts out their forecast, which is calling for down 2%. That compares to their expectation now for flat for the year versus the original expectation for this year was down 3%. But as you can see, I mean, our revenue at flat this year was up low teens. So they're not the same, let's put it that way. Next year, the M&A pipeline seems incredibly healthy right now, just like it did in November or December last year. So I think M&A is going to continue for quite some time into next year. So that should bode very well for the high-yield leveraged loan space and the CLO space. I think next year is going to look a lot like this year. I can say that even investment grade, November was the second highest U.S. investment grade ever. So maybe we start to see investment grade start to come back a bit after a down year this year. I wouldn't bank on that, but I wouldn't find, I wouldn't be surprised if it didn't come back a bit. And then on the fourth quarter call, we'll share with you what's going to mature in the next 5 years. And every fourth quarter we show you this chart, it's our pipeline, it shows that the next 5 years in total are larger than they were a year earlier. So the pipeline just continues to build and I expect it will again.

Okay. And I know there are some expectations for interest rates to start rising from these levels. We've been talking about this for a while, but it looks like it's starting to happen. How would that impact that issuance trend if it does happen?

So our statisticians had run all sorts of correlations and they found a very, very modest inverse relationship between rising interest rates and issuance. They have found a very, very strong correlation, positive correlation between GDP and issuance. So that's number one. But I don't like to think of things at a macro level. I like to think of things at human behavior. You're a treasurer for a company, right? You've got a $500 million bond due February 1 next year and rates go up 2% tomorrow. What do you do? You can issue equity. I don't think so, right? I mean, everyone on this call would be raising Cain with the CFO of a company that did that, right? So you're going to have no choice. You're going to issue new debt for around $500 million. You've heard whatever I said, the same amount, maybe it's less to keep interest coverage, interest ratios, coverage ratios the same. Does not really affect us. So I don't think 1%, 2%, 3%, 4% is going to change any treasurer's behavior. You start talking 6%, 7%, 8% increase in interest rates, yes, maybe issuing equity does make sense. Or more likely, you don't do that capital project, right? And that means you're now affecting GDP, which is my original point. That's the correlation. So interest rates rise that stymie GDP, then you start to see less new issuance.

And you mentioned this in one of the answers to an earlier question, but even though we've had volatile debt issuance trends, your Ratings revenue, for the most part, keeps on going up every year. How do we decouple that? What drives that?

Yes. Well, the first and foremost is, well, to your point, our Ratings revenue has been up 15 in the last, I'm sorry, 13, I will look on, 12 of the last 15 years, okay? There are 3 down years. One was the financial crisis. And that was the evaporation of the U.S. RMBS. One was 2018 because of Trump tax reform and companies could bring back, U.S. companies could bring cash back from overseas that was trapped. So they didn't necessarily need to issue a new bond, pay off an old bond, they can bring some cash back. And the other, one of the year is down a smidge. So yes, it's pretty consistent. But half the business is not related, half the Ratings business revenue is not related to the current year's issuance, what we call nontransaction. So it's surveillance fees, which is based on total amount of outstanding debt. It's frequent issuer programs, people who pay a fee for all their debts. So whether they issue or don't, they'll pay one way or the other. There's a number of fees in there that are pretty steady. A few small ones are volatile. But the point is, half of it doesn't really relate to the current year's issuance. So I think that's one of the things that causes our business to be steadier. The other thing I'll say is this, everyone thinks we're volatile because you have a month where nothing happens. December of 2018, there was a one high-yield bond issued in the U.S. in December of 2018. Well, big deal, they all came in, in March or April, right? So it may be volatile from month to month, but from year to year it's not that volatile because they have to come in. They've got debt due.

Yes. That makes a lot of sense. Okay. Why don't we move on to the Market Intelligence segment. And that seems to be a bit more competitive than some of the other segments that you're in. Can you talk about how your products and your services are differentiated from some of the competitors that are out there?

Yes. So if you were to create a schematic, I don't know, what they call Venn diagram with Olympic circles, right?

Yes, okay.

If you were to take Bloomberg and Refinitiv, FactSet and we, I don't know, 75%, 80% of the information is the same. We all have the fundamental data. We all can do stock charting. We all have earnings call transcripts, right? But each of us then have those other things that the others don't have. And where we really try to specialize is in unique data sets the other folks don't have. So purchasing SNL several years ago really brought us deep rich data in 4 sectors: banking, insurance, media and mining. Now not the banks, the bank branches; not the mining company, the individual 80,000 mines, so this is asset-level data. We then brought in Panjiva. Panjiva has information about shipping, what's in the containers of a containership. 451 Research has information on technology companies and data centers, right? And we'll give this later, I'm sure, but the IHS data sets bring unique data sets on autos, et cetera. So these are unique data sets you're not going to find and that creates a value and a stickiness because when a procurement officer walks into your shop and says, we're thinking about doing, what, an RFP or whatever, to change out the vendor. Well, if the banking analysts start screaming and the insurance analysts start screaming and the mining analysts start screaming, the technology analysts start screaming, it becomes a stickier product. And of course, on the other side, we win more bake-offs. So that's really what we try to do. And the last point I'll make is, it's not just the platform. People, I find investors get obsessed with the notion of the platform because it's something you guys stare at all day long. You're staring at your Bloomberg, your FactSet, your Refinitiv or your Cap IQ Pro platform all day. So therefore, that's the world you see. But the data is outside of that with data feeds. So we've got, we've created the Marketplace, which has about 150 data sets that are fed directly from our mainframe to your back office or maybe to an Excel download to your desktop. But it's not just all a desktop game. That's the important point.

Okay. Again, I want to talk about the pending merger in a second. But before we talk about that and still sticking with Market Intelligence, what type of investments have you made? You mentioned a few of them. Where we think you'll see investments in this area going forward?

Yes. So the things we've done lately, we've made like Mandarin version of the desktop so that our Chinese customers can easily access the information. But we've also pulled in a bunch of company data from Chinese companies to put into the platform for people, investors and clients around the world. I talked about the Marketplace. ESG scores, I'm sure we'll probably talk about ESG at some point. So a lot of work at ESG. Private company data, last year with our Kensho tool, Kensho Link, we brought in records on 15 million private companies. So that's what I would expect to kind of continue. We want to bring in records on about 50 million private companies over a couple of years. And yes, so probably we'll continue to flesh out those areas.

Okay. All right. Great. Why don't we move on to Platts. Can we talk about how Platts was impacted, if at all, during the pandemic and what you see for that business going forward? And again, we'll keep the IHS Markit discussion for later, but just Platts pure-play.

Yes. So Platts is not immune to collapses in commodity prices. It's just less impacted than other companies who might be selling to those clients. Because Platts, you generally don't stop buying from us until you go out of business because you need the prices to invoice your customers. They're embedded in long-term contracts. So that's why it's such a sticky business. But unfortunately, when oil got down to $20 a barrel, some frackers and some E&P firms start filing for bankruptcy, right? Now whether they ultimately end up being bankrupt or what have you, it just creates a disruption. And then how do we, if we've got a 2- or 3-year contract coming due with someone and oil is $20 a barrel and they're suffering, how do we get much pricing uplift in that environment, right? Could we? Absolutely. What we know, these are long-term relationships. We've had Platts since 1957, right? So just, we want our customers to be healthy in order for them to buy new products and new things we're building, and they really can't do that if they're suffering so. But nevertheless, we grew revenue just like we did in 2015, '16 when oil prices collapsed. So we grow revenue less, but we still grow.

And again, we'll talk about IHS Markit in a second, but just on what you offer now within Platts. Is there any either benefit or detriment to your business going forward if we move away from, if we go to more towards in terms of the energy transition that people are talking about?

Sure, sure. So first, let me just kind of put in perspective. Our folks predict that the peak oil will not be for about another 20 years, okay, even with pretty aggressive electric car assumptions. Which means every year, except a pandemic year, we're going to produce and consume more oil for about the next 20 years and then it starts to go down. So this is not a problem that's immediate, okay? But we're not complacent either. So we've launched a ton of products, whether it's hydrogen prices, LNG, which is a kinder, gentler fossil fuel, with our JKM marker, which has become the benchmark. We do recycled plastics, renewable jet fuel, carbon credits, things in methane, I think like hydrogen, NOx. Then we've also moved into agriculture, Black Sea wheat, sugar, soybeans. So we're doing a number of things in the energy transition, but also in other spaces so that we can make sure that we've got plenty of business when oil finally does start to go down.

Okay. Why don't we move on to your Indices business. Again, similar question, how did the pandemic impact that business? And what should we expect going forward?

Well, Indices is kind of funny. We've got a little bit of a natural hedge within the business when volatility hits. 60% of the revenue is based on ETFs and mutual funds that are passively managed and the AUM associated with them. So naturally, we want AUM to rise. We want money to move from active to passive. I apologize to all of you on the call. And we want the stock market to go up. That's good for 60% of our Indices revenue. But 20% depends on derivative trading. That's everyone on this call buying S&P 500 options as we factor futures, VIX contracts, for example. And when the market crashes, like December of '18, like March of 2020, everyone on this call starts buying options and futures of VIX contracts like a madman. And therefore, the volumes go up and our license fees from the CME and CBOE go up. So we do really well in quarters. The last 2 weeks, I don't see the numbers on a daily basis, I could, but I don't. I guarantee they've been glorious in the derivative trading bucket for the last 2 weeks. Derivative markets going up or down 2% every day. So that's the dynamic there. The Achilles' heel of this business would be if the market went down, stayed down and calmed down. And it sat there for a couple of years. Right now, it hasn't happened yet. In the last 15 years, Index revenue has been up every single year. But theoretically, it could happen.

Okay. So the margins in this segment have been stellar. Is the margin profile here sustainable at these high levels?

Well, yes, and I believe they will go higher. It's just a mathematical issue when you've got, say, 100% incremental margins on a 20% business. On your next increment of revenue, $10 million of revenue, that 20% margin is going to jump a lot more than 100% incremental margins on the next $10 million in a 7% margin business. So it's just mathematics. But yes, I fully expect. We want to invest. We want to make sure that we're creating new indices and that we're on the cutting edge of all things that might occur. But that investment generally is not that large enough to eat into the margins as long as the revenues continue to grow.

Okay. All right. So I've pushed off the questions on the merger. So why don't we get into that a little bit. First of all, just from, I guess, a blocking and tackling perspective, what's left to close the deal, if anything? And are you still expecting, I think you said the first quarter '22 close?

Yes. We're still expecting the first quarter next year close. We still have to hear, well, the Canadian regulators need to still make their ruling. But as far as the DOJ and the U.K. and the EU, they've all collectively said what they want. And rather go into what each one wants individually, let me just say, in aggregate, we need to divest the OPIS business and the McCloskey, the coal business. IHS needs to divest them. And we already put the press release on that. So that's out there for $1.2 billion or $1.1 billion, I can't remember, $1.1 billion, $1.2 billion to News Corp. And then after that, about a month or so ago, we noted that we need to put up for sale our LCD business, our CUSIP business, a couple leveraged loan indices and then IHS needs to put up for sale their base chemicals business. Collectively, those new set of businesses is about $300 million of revenue with generally above average margins for the segments that they report in. So they're really good businesses. In order to close the merger, we need to have a signed agreement for the few indices, for the CUSIP and for the base chemicals, a signed agreement that's approved by the regulators. Once we have that, we're ready to close. We're allowed to sell LCD after the merger is completed.

Okay. That is actually a good data point. I did not know that. So that's good. Okay. Just jotting this down, okay?

Yes. We've got until April next year, April, late April of next year to sell LCD.

April of 2022?

Yes.

Next year. Okay. Got it. We're still in 2021, just checking from my perspective. Okay. Great. So let's assume we get over all those, over all those and the deal closes. Can we talk about, and I know you're not going to provide numbers just yet, but just from a high-level perspective, what does this company look like going forward? What are the benefits of this merger?

Sure. For everyone on the line who love synergies and profitability and cost, this creates a cost opportunity. But that's not exciting to the company and the employees themselves. They care more about the revenue growth and the things that are enjoyable. So in my mind, and I've said this the whole time, I think we just make each other's products better. Taking IHS fixed income indices and combining them with our equity indices and create combination products. Taking their auto data, make it available to our customers on the Cap IQ Pro platform. Taking our credit information and adding it to these workflow tools that they have. So there's just so many examples back and forth. There's actually 200 revenue ideas that are part of the revenue synergies. So none of them are large. They're mostly $5 million, $10 million ideas. I think one might be $25 million. But that also means it's less risky because you don't have to worry about $100 million idea failing, right? So that's really the fun part, just making sure those products are better. And I've shared with many people the Marketplace. If you haven't been there, please go to marketplace.spglobal.com. That's my advertisement for the day. And you'll see about 150 data sets there. And you can see what's in them, get sample of the data set, download an Excel file. And you say, wow, exactly what I was looking for, or no, no, no, that's not what I wanted, but you quickly determine that because how can you buy a data set from us if you don't even know what we have. But now we take all of the IHS data sets and we put them there as well. And I think that's going to be really a lot of fun. And then what can you do when you combine some data sets? What happens when you take a, oh, one of those satellite, we have the satellite information on cars in parking lots at shopping malls, right? Standard fare, people like that. Now you add that with some information from a REIT database and you start to create some alpha ideas. So it will be really fun to see what happens when we combine certain data sets or our customers combine certain data sets.

Okay. So that's on the revenue side. I know we kind of skipped over the expense synergy side, but we're all analysts, so we've got to look at that as well. And I know you've increased the target. Can we just talk about that? What kind of synergies from a cost perspective you expect and where should that come from?

Yes. I mean, the vast majority of the cost reduction will come from employee reductions because you don't need 2 CFOs. You don't need 2 CEOs, et cetera. When you combine business segments, you don't need 2 heads of the business and 2 heads of marketing, et cetera. So it's not pleasant, but it is a reality. And then when you don't need as many people, you don't need as many offices. And plus in a post-COVID environment, we're learning, increasingly learning, you don't need to be in the office. So we're not going to have 2 offices in all these major cities where they exist today with us and IHS. There'll be one. And so that creates the next level. And then you get into things like purchasing contracts or maybe even the places where we might need a key in the same data or purchase the same data, those efficiencies. So there's some procurement savings as well. Those are really the cost. And that's why they can happen much quicker. The revenue synergies might take longer because besides some early cross-sell, a lot of things have to be programmed, right? The things I mentioned, someone's got to build something, someone's got to program something. That takes a little bit of time.

Okay. You actually alluded to one of my later questions, so I'll jump into this now. Obviously, there's been some changes in every business because of the pandemic. How is your business, what do you think the changes will be that might be a little bit more permanent going forward?

Well, definitely, the work-from-home and the office space. I mean, our plan going forward is, on average, employees will probably spend 2 days a week in the office. Business travel will be down dramatically. I think the great realization, particularly, how do I say, internal meeting business travel, right? People from our New York office going to our London office and vice versa. Really? Why can't a Zoom call take care of that, right? Customer-facing things, really, are very efficient to do a Zoom call. You can visit 5 cities in 1 day. You can't do that when you're on the road. But there is still, the face-to-face will take place. So I'm envisioning less office space, as I mentioned earlier, and we'll never go back to the travel level we were before. We used to spend $85 million a year in travel. It will probably be $60 million a year going forward.

Okay. I'm sure the travel industry is not happy to hear that, but it's completely understandable because you're not the only company doing that, so that's fine.

Yes.

Before we get into some of the ESG discussion because I know we've got a lot of folks on the call from that. We did get another question from the line. We've had a lot of stimulus type of, I'm just paraphrasing this, stimulus type of proposal, stimulus type of, fair to ask, some did not. Is there anything either in the infrastructure plan or the Build Back Better plan as proposed that you might think would be a positive or negative for your business?

Well, if you think about infrastructure, I just think about what companies will benefit from that. So it's the companies that are building the roads or building whatever it is that's in the infrastructure bill that's going to get, how does someone who builds the roads build more roads? They probably got increased capacity, need to make more cement, more asphalt. Well, how do you expand? You probably need to borrow money. So you issue a bond and we probably rate it. So that's what I think is going to happen. We'll benefit from all those companies that need to expand capacity in order to meet the requirements to build the bridges and wind farms and what have you.

Okay. And on the Build Back Better side, again, I know that nothing has been finalized as of yet, but is there anything in that aspect of the business that might help you or a similar kind of theme.

I'm going to be embarrassed to claim ignorance on this. I don't...

No worries. It's still not out there yet.

Yes.

That's more human capital.

I'll struggle for that when I get back in the office, but I don't follow politics so much. I'm not too familiar.

That side, and I don't blame you. Yes. It's basically it's the health, it's the social infrastructure programs, education, childcare, things like that. My guess is it would be similar. Those companies are going to be expanding. That's what they call it.

Yes. I mean, once again, if there's some company that needs to expand their capability, they need more facilities. And so you guys would know better. But if you know a company that is going to benefit but then to expand and need to invest and build, they need to borrow money to do that, they raise money to do that, then we would probably be a beneficiary of that, but I can't speak about that potentially.

Okay. Fair enough. So again, I mentioned this is also an ESG conference, so let me ask a couple of ESG-focused questions. So first, and I know you're probably not going to be able to answer this specifically, but can we talk about maybe some high-level goals from the company from an ESG perspective or at least where we could find that?

Yes. So the best place to find that, we put out our third annual TCFD report. And it's on our website, if they can't find it, send me an e-mail, I'll point it to you. But there shows our various commitments for net zero targets. And please don't quote me, I think our net zero by 2040. I think we're seeing a 25% reduction in the next couple of years. So we've got some, and they're verified by the science-based. There's a group out there. I apologize. I don't remember the acronym. So we've got a number of commitments out there, but the TCFD report is the best place. This is one of my weakest areas to speak about investors with because I don't get a lot of questions here. There's a woman named Alyson Genovese that I bring in who handles all of our internal ESG. And so when I do get investor who really cares about what we're doing internally at ESG, I'm happy to set up a call with Alyson, and she can speak very intelligently on these points. I spend more time really on our own ESG products that we create and sell, that we'll monetize. And investors generally ask those kind of questions.

All right. So perfect segue to that. So why don't we talk about that. Can you tell us, obviously, this is a business that has grown dramatically for you and should continue. What do you offer and if it's possible to maybe go through by different segment, that would be great.

Yes. I try not to give too long an answer here, but I think, I don't think there's another company in the world that brings together the collection of assets that we have to bring to bear in creating ESG products. And so we start with the RobecoSAM survey. That's a survey that an asset manager called RobecoSAM has been running for about 22 years. And when people say survey, you think, oh, that's kind of cute. It's got a little 3- or 4-page survey. It's a 150-page survey, right? It takes a company about 100 hours to complete the survey. So we're collecting information you're not going to find in a 10-K or 10-Q or a proxy or maybe even TCFD report. So this is fantastic information, which then differentiate our data, therefore, it makes our scores better. So we've got 1,856 companies who filled out the survey last year that feed into our database on the 8,000 or 10,000 companies that we have scores on. Now if they don't fill the survey, we're left to do what our competitors do, which is basically try to scrape from Ks, Qs and proxies and websites and pull what we can with as best we can. But that's the last resort for us. That's not our first resort. Secondly, we have 1,500 Ratings analysts. They're increasingly asking for additional ESG information from the companies around the world. So we have what we call ESG data factory. Everything we collect goes in the data factory. And then from all this, we create the scores. So we launched the scores on 8,000 or 10,000 companies. For our clients on Cap IQ Pro, you get the ESG score and the E score, the S score and the G score, 4 scores for free. Now if you want to see the 27 subscores, human rights, et cetera, each with a score and weighting, we'll flip a switch for an extra fee. And there's also about another 500 data points, which I think in many companies you can see as well. So there's quite a bit of detail that you can see for those who really want to dig into the specifics of it. But also a corporation, corporation, imagine you've got a supply chain. I think you'd want to know about the human rights score on any vendor who's supplying you anything. Because the last thing you want to do is end up on the front page of The Financial Times because one of your vendor has some human rights violation somewhere in a factory, right? So it's more than applicable just to Wall Street. These scores then feed the indices. And this is really important. So how does, example, the 500 ESG Index was launched. How does that work? Simple explanation, you take the 500 companies, split them by their sectors. You throw out those companies who score the lowest quartile any sector based on our scores, they're out. Now BlackRock and State Street and DWS and UBS have launched ETFs on our 500 ESG Index. And CME and CBOE have launched options and futures on it. Let's fast forward a few years and imagine there's a lot of AUM in there. A lot of people on this phone call might say, you know what, wow, I probably ought to benchmark my actively managed portfolio against this really popular 500 ESG or 400 ESG Index. And when you do that, doesn't it make sense to buy the scores from us. They use the same data methodology with what you're benchmarking against. So to me it's a very virtuous circle. The company that's ultimately going to be successful in this space are those with credible scores, with data that people believe in and a powerful index. And I think those are the 2 main ingredients you're going to need to be successful in the space. Now tangentially, you then have the Ratings folks putting out at ratings, ESG evaluations, green bond scores. You've got our Platts business which is doing all sorts of work, which I mentioned earlier already in energy transition. And a lot of these things will feed each other. And then now you're thinking about Trucost. Climate kind of transcends all this, like its own category. And so Trucost have been game-changing when we purchased that several years ago because they're really the preeminent company in the world for that kind of climate data and physical risk data. So sorry for a long answer.

No, no, no. This is actually good. It's exactly what we needed. But I think you guys have quantified it, and again, every company kind of defines ESG different. But I think you've quantified what your ESG products are. And I think IHS has also quantified theirs. Can you just remind us what those numbers are and where you think that will be over time?

Yes. So we're targeting around $100 million of revenue this year and expecting that to grow at about 40% CAGR for the next few years. Once again, the table is in that TCFD report I cited earlier. It will show you our projections for the next 4 years by business. If you grab a ruler, you can measure the revenue for each of them. But I mean, I just think the scores are really going to take off when people realize the value of the data that we have in them and I think the AUM is going to take off. I just think each of these things is going to do quite well.

Yes. Okay. So stepping back again, just looking at the total company holistically. You obviously, you see information that we don't see as investors and analysts. But if we're trying to analyze your company from the outside, are there any variables, economic, anything else that we should be looking at that we can track the different progresses within your different segments?

Yes. This is something that's kind of frustrating for folks. I mean, it's really, really hard from the outside for you to judge how Platts or Market Intelligence are doing. They're subscription-based businesses. And so they don't really turn on a dime and they don't necessarily react immediately to upturns or downturns in their customer base. But rule of thumb is, if Wall Street is healthy, then they will have upward pressure on their business. If they're not, they'll have downward pressure. And if oil prices or commodity prices in general are really weak, that puts downward pressure on our Platts customers. So those are kind of 2 rules of thumb there. The Indices business, I think, is pretty easy for people to track. People who track the AUM from BlackRock and State Street and the Vanguards and the firms out there, and people do that. They can track the derivative activity at CME and CBOE. So that's relatively easy to track and the Ratings issuance of course. But the fundamental driver there is going to be GDP. So you need to care about GDP. You might want to care about heads on Wall Street, AUM levels, as long as articles keep being written that active managers can't beat the benchmarks consistently, if flow continues. If you start seeing articles in the opposite side of that, then that could be problematic. So those are things, I think, to keep an eye on.

Okay. All right. That's helpful. Maybe we can talk again big picture capital allocation. If you could just remind us what your capital allocation priorities are.

Yes. First and foremost, it's always invest organically in the business. And because these are things we know and probably most entailed to invest in because we know them best. And so you've seen us for the last several years on the fourth quarter call, maybe first quarter call. I think it's fourth quarter call, where we share with you, here are the new investment categories that we're looking at for the upcoming year and here's how much we spent in the past year on the categories we told you about a year earlier, things like China or ESG or marketplace and things we've been building, okay? Secondly, we love buying data sets, whether it's 451 Research or Panjiva or cFlow. In my mind, IHS is really just a company with lots of data sets, right? So to my mind, it was buying data sets, just happy that we'll house a lot of them in one place. So we're always looking for unique new data sets. Some can be very tiny, Live Rice Index, tiny, tiny company. But if we can turn the rice price into a benchmark in the next 5 or 10 years, that's going to be quite useful. And technology. Kensho was unique. Panjiva, it's an amazing technology. And so when we can buy technology that's unique, we'll always want to take a peek at that. And the rest then, we've paid a dividend, not just paid a dividend but increase the dividend every year for the last, oh, 46, 47 years, somewhere in there. There's only 25 companies in the S&P 500 who can boast that. And then, of course, our new target will be to return at least 85% of our free cash flow each year in dividends plus share repurchase. So of course, we've got big share repurchases ahead as we work through the cash we've stockpiled but also then to get into our new groove of 85% free cash flow. So that's kind of the order.

Okay. Great. That's helpful. We got another question from the line. And again, I'll try to paraphase this. Given everything that's going on with China these days, can you remind us what your exposure is in the different segments?

Yes. So we do about $100 million a year of revenue in China. The vast majority of it is rating what we call dim sum bonds, bonds that are sold overseas usually in a foreign currency, I guess always maybe in a foreign currency. The local new effort, 46 bonds, I mean, let me put in perspective for you. In the first quarter or I'm sorry, in the last quarter, we rated about 1,800 or 1,900 bonds. We did 15 in China. So you get the point. It's very tiny. So there's not much exposure in that new effort. We think it will be a big deal someday, but tiny, tiny right now.

Okay. And again, along those lines, I know it's still early, but anything differently? I mean, you're still progressing in terms of where you think China will be or has anything changed over the past few weeks or months?

Well, I think it's very informative for the markets to see what happens when you've got the Evergrandes of the world. Because here, you've got companies that are rated AA or AAA by local rating agencies that are defaulting. And you just don't see that very often in the rest of the world. Last year, there was a company, I don't remember the name because it was a Chinese kind of name that I would not remember that had AAA, AA ratings by local rating agencies that defaulted with 0 recovery. If that would be like Home Depot defaulting and when the creditors ran into all the stores to sell off the inventory on the shelves, the shelves were all empty. Pretty hard to imagine, but that happened. And so I think it really is a wake-up call for not only global bond investors, but local Chinese bond investors to say, wow, I really need to understand the credit risk of these securities I'm purchasing. And getting AAs and AAAs on all the bonds is just not informative at all.

Okay. That's really helpful. We're coming up towards the end of the time. Was there anything that we did not get a chance to discuss that you want to talk about?

The only I would add, I mean, if you think about the recent climate summit that took place, right, and all these national commitments that are taking place, that just is really just, in my mind, positive news for us because they're talking about these commitments for carbon. Well, we're putting out carbon credit prices. That's another element within the Platts business. If you think about things like methane emissions, well, we're putting out methane performance certificates. If you think about transportation, we've got lithium prices and cobalt prices and nickel prices. So any time there's an initiative out there to do something that are put out by governments and regulators, it usually means someone's got to collect some data, get some prices, get something that's somewhere in one of our businesses will probably create a new opportunity.

That is a great point. I did skip over that. So thank you for that. I think that's a great way to end. Chip, again, thank you for today. Thank you for everything, and I really appreciate all your help. And everybody on the line, thank you so much for joining us today. Have a great day.

Sounds good. Thanks, everyone. Thanks, Jeff.

All right.