How impact investors can create system-level change through long-term fixed income investments
At Breckinridge, we believe environmental, social and governance (ESG) factors can impact a municipality’s long-term financial performance and overall credit quality. To better inform our investment decisions and enhance our credit analysis, we engage with municipalities on ESG issues. We view these direct conversations with muni issuers as particularly valuable, because they can provide deeper insight into an issuer’s integration of ESG into the decision-making and budgeting processes.
This year we are focusing our engagement efforts on U.S. cities. We focus on municipalities that fulfill at least one of the following objectives:
- Applicability to Other Cities: We consider whether the city is known for best practices in managing sustainability issues. For cities with strong sustainability reputations, findings can be applied to our ESG research for other cities.
- ESG Issue at Hand: We may target a specific municipal issuer to get a better understanding of an ESG issue affecting it, and to explore ways the city is managing the issue—regardless of whether we invest in its bonds or not.
- Investment Exposure or Potential: We choose municipal issuers that we invest in or may invest in.
Our engagement calls to date have revealed the degree to which ESG factors are permeating the local government landscape. Additionally, the calls have highlighted the diversity of ESG-related concerns and objectives (Figure 1). For example, in Georgetown, Texas, reliance on renewable energy is the core sustainability focus. However, for Oklahoma City, Oklahoma, land use planning and urban sprawl are key priorities. For two coastal Florida cities, Tampa and Miami Beach, rising sea levels and climate change continue to be long-term sustainability challenges. In Pittsburgh, Pennsylvania, the city focuses not only on the “E” (environment) in ESG decision making, but also on the “S” (social). Through its OnePGH initiative, the city is committed to a resilience strategy it has designated “4P”: People, Place, Planet and Performance. Through the city’s holistic focus on these areas, Pittsburgh is attempting to reduce income inequality.
Cities are increasingly considering a diverse set of ESG factors when crafting policies and allocating scarce resources. Through our engagement calls, we learn more about these initiatives and how they are having a beneficial impact on residents and communities. We believe these calls help us to perform even more in-depth ESG research, and to better discover blind spot risks that may not be evident in traditional financial statements. We look forward to continuing our dialogues with cities and towns, and gaining more valuable, below-the-surface understanding of municipalities’ ESG issues.
DISCLAIMER: The opinions and views expressed are those of Breckinridge Capital Advisors, Inc. They are current as of the date(s) indicated but are subject to change without notice. Any estimates, targets, and projections are based on Breckinridge research, analysis and assumptions. No assurances can be made that any such estimate, target or projection will be accurate; actual results may differ substantially.
Nothing contained herein should be construed or relied upon as financial, legal or tax advice. All investments involve risks, including the loss of principal. An investor should consult with their financial professional before making any investment decisions.
Some information has been taken directly from unaffiliated third party sources. Breckinridge believes such information is reliable, but does not guarantee its accuracy or completeness.
Any specific securities mentioned are for illustrative and example only. They do not necessarily represent actual investments in any client portfolio.