Responsible Investing is a relatively new concept in the municipal bond market, but we believe it's well-suited to a market that finances entities and projects intended to serve the public good.
Responsible Investing incorporates environmental, social and governance (ESG) factors into the investment process through credit analysis and portfolio construction. The goal is to align investments with the values of socially conscious investors through programs and projects that contribute to local communities in a positive way, such as:
- Renewable energy projects.
- Infrastructure for clean drinking water and sustainable waste projects.
- Public education facilities in underserved communities.
- Not-for-profit hospitals and other health care facilities.
- Affordable housing.
- Land conservation.
Determining which muni bonds qualify for ESG portfolios
Responsible Investing is not just about avoiding investments deemed to have a negative impact. Equally important is investing to achieve a positive impact on society -- and this must be done in a manner that produces competitive investment results.
ESG standards incorporate the long-term sustainability of a project and the possibility of lower costs, lower waste and more efficiency over time, which will contribute to underlying credit strength. Research suggests that implementation of sustainable practices can create efficiencies to improve investor value and mitigate risk over time.
For example, a city in North Carolina issued bonds to replace asbestos water pipes throughout its water system with 100% recycled ductile iron pipes designed to last over 100 years. The project should limit/eliminate system water loss, increase water transmission efficiency and improve the quality and safety of drinking water. Initiatives like this that increase sustainability of water and sewer systems, conserve natural resources, or improve energy efficiency could increase savings for state and local governments in the long run.