The Municipal Market and Climate Change

The effects of climate change will continue to have broad implications for the nation’s economy, institutions and infrastructure. In 2017 alone, three major hurricanes (Harvey, Irma and Maria) struck the US and its territories, and destructive wildfires hit California. In recent years, severe droughts, tornados, blizzards, floods and heat waves impacted states throughout the country (see Figure 1). Recovery costs are growing exponentially with continued development in the areas most susceptible to natural disasters. Despite recent actions by the Trump administration de-emphasizing climate change initiatives, we believe all segments of the municipal universe, including state and local governments and utilities and transportation, should plan not only to protect against natural disasters but also to implement environmentally friendly policies to help prevent and reverse the effects of global warming. Significant capital is required to fund these initiatives, which will present opportunities for investors of municipal bonds. We incorporate environmental, social and governance (ESG) factors, in addition to fundamental research, when assessing the credit quality of municipal issuers. We believe the depth of our ESG analysis allows us to identify municipal issuers that are best positioned to withstand the negative consequences of climate change while also taking steps to reverse its effects.

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