ESG In Municipal Bonds: An Impact Story Takes Shape
“Green,” social, and sustainability-linked bonds have flooded the market recently, leaving many to wonder where opportunities remain in a suddenly crowded space. So, how can investors make sense of this fast-changing market? Ironically, it’s the unbridled race into sustainability and Environmental, Social, Governance (ESG) investing that creates the opportunity for active management that can separate the issuers able to produce material impact versus those looking to catch a “marketing” tailwind.
Municipal bonds on their own generally tend to be aligned with the public interest as they can help fund environmental or social projects such as mass transit, education and affordable housing. However, unlike other asset classes, it can be difficult to categorize municipal bonds through a traditional ESG framework. It takes industry expertise, coupled with deep research, to determine the depth of impact among municipal bond offerings.
It’s against this backdrop that an active, customized approach can target specific impact outcomes while accounting for the risks and opportunities under an ESG lens. This strategy can provide either a “low friction” entry point for those new to ESG investing or can help more mature programs amplify their impact in an allocation that traditionally demands deeper analysis.