Muni Bonds and Sustainability: A Natural Fit

Executive Summary

  • Debt proceeds for state and local governments often align with a sustainable mission making municipal bonds a natural fit for ESG strategies.
  • As state and local governments look to address climate change regulations, sizeable pockets of the U.S. will require substantial investments in renewable energy over the coming years, which should provide opportunities for ESG strategies.
  • We expect the municipal green bond market to continue to grow as issuers look to appeal to ESG investors and expand their buyer base, which may someday lead to lower financing costs.
  • In our view, key challenges impacting our communities such as climate change, aging U.S. infrastructure, and the growing burden of aging population on healthcare and education needs only increase the importance of the muni bond market in funding essential solutions.
  • As a UNPRI signatory, Standish is committed to sustainability and offers investment solutions to help meet responsible investors’ goals.

Muni Bonds a Natural Fit

Within the fixed income markets there has been a growing interest in Impact and Socially Responsible Investing, including the consideration of Environmental, Social, and Governance (ESG) factors. In our view, municipal bonds are a good fit for ESG strategies as debt proceeds for state and local governments often align with a sustainable mission. For example, infrastructure revenue bonds are closely tied to the well-being of the economy, environment, and health and safety of a local region, scoring well from both Environmental and Social impact perspectives. U.S. states and cities have vast infrastructure and climate mitigation investment needs which is increasingly being met with Green Bond issuance; municipal power agencies are also challenged with meeting new and stringent regulatory requirements regarding the lowering of greenhouse gas emissions including more use of cleaner, renewable energy sources.

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