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ESG

ESG Newsletter published on July 1, 2022

Updated Local Government Research Framework Marks Latest Advancement of ESG Analysis in the Sector

Summary

  • Breckinridge updated the sustainability framework for local municipalities.
  • The enhancements help analysts evaluate environmental, social and governance (ESG) factors for municipal bond issuers.
  • Added information enables analysts’ to develop more comprehensive insights into how issuers are addressing ESG risks and their success in mitigation efforts.

Breckinridge’s updated sustainability framework for local municipalities enhances our analysts’ ability to evaluate environmental, social and governance (ESG) factors for municipal bond issuers. It also marks another milestone in Breckinridge’s advancement of ESG research, as more municipal bond market ESG data becomes available and investment risks and opportunities evolve.

The firm’s municipal research and information technology teams integrated and automated access to more data about issuers in the framework’s architecture. The added information enables analysts to develop more comprehensive insights into how issuers are addressing ESG risks and their success in mitigation efforts relative to other issuers with similar demographic and socioeconomic characteristics.

Environmental data includes factors such as air quality, the percentage land covered by impervious surfaces—a factor in heat and water-related risks, and water quality. Governance elements include the age of the housing stock in the service area, which serves as a proxy for the condition of an issuer’s public infrastructure. Social data in the framework includes such metrics as broadband access, educational attainment, housing affordability, health outcomes, and income equality.

In addition, the updated framework looks at the physical climate and the climate transition risks of each issuer. By gathering and comparing data across these metrics, Breckinridge analysts can assess current and emerging ESG trends within the city/county sector over time. The additional data and system architecture also allows analysts to quickly access information across bonds from the same issuer, offering a fuller and more in-depth view of a municipalities’ credit commitments and how risks affect their relative value.

“As we continue to increase and link the data available in our framework for these sectors, we are sourcing key ESG data across an array of issuers in our investable universe,” explained Andrew Teras, director, Municipal Research. “Then, we can compare that data with a wider swath of the constituents in the relevant benchmark index to gain greater insight into relative ESG performance in an expanded issuer set.”

“These data and evaluation enhancements also allow our analysts to conduct peer group comparisons with more granularity across a wider set of critical metrics,” said Michael Bonanno, senior research analyst.

Because Breckinridge integrates ESG risks into municipal bond credit research, the enhanced framework's automated and broadened data gathering capabilities benefit the security research process. The framework’s expanded data and comparison tools also should benefit Breckinridge’s portfolio customizations, which seek to selectively invests in municipal issuers with above average and/or improving ESG profiles.

 

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. Investors should consult with their financial professional before making any investment decisions.

While Breckinridge believes the assessment of ESG criteria can improve overall credit risk analysis, there is no guarantee that integrating ESG analysis will provide improved risk-adjusted returns over any specific time period.

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.