The Muni market is a good place for investors to have a positive social impact with their investment holdings.
During the last few years there has been a proliferation of asset managers who are offering sustainable investment strategies which target investments that allow investors to have an impact on helping to make our communities a better place to live. These strategies are called ESG investing because investments are only made in projects which improve our Environment, help address Social or community problems, and ensure there is good Governance involved. Some areas of focus may be:
Clean water and sewer
Programs to improve the social fabric of the community
Municipalities have sound finances and budgets
Plans are in place to fund Pensions and OPEB
Some projects or issuers do not qualify as suitable for ESG investing. These might include the following:
Pollution or carbon emission generating power plants such as coal
Projects that mostly benefit the private sector
Prisons or Jails
Issuers with large unfunded pension liabilities
Issuers that have not been responsible with budgeting
Issuers with a history of late disclosure filings
Templeton Financial Services Muni Strategy:
We begin our investment process by examining the “public purpose” of the bonds. Bonds for education and essential services will always have good public support. Bonds which benefit the private sector do not have good public support from taxpayers if anything goes wrong. This has led us to place a strong emphasis on bonds for local school districts, healthcare, affordable housing, and essential services. We have avoided bonds with a weak public purpose such as stadiums and hotels. TFS has also avoided issuers that don’t demonstrate good governance. These issuers may have large unfunded pension liabilities, are over indebted, or do not have sound budget practices.