ESG Municipal Bonds: The Next Sustainable Opportunity
When you think of sustainable investing, does your mind immediately go to stocks? Sustainable investing may have started in equities, but it’s now expanding into a variety of specialized asset classes—including municipal bonds.
In this infographic from Wells Fargo Asset Management, we highlight the growth of ESG (environmental, social, governance) municipal bonds and how investors can identify them.
A Growing Shift to ESG Bonds
Over the past decade, ESG municipal bond issuances have had a compound annual growth rate (CAGR) of more than 70%.
|Year||Green and social municipal bond issuance|
Source: Morgan Stanley Research, Bloomberg
Issued by state and local governments, these bonds often have a positive impact on society or the environment. For example, ESG municipal bonds can be used for affordable housing or renewable energy.
Which factors are propelling their growth?
Amid pandemic-related volatility, credit rating agencies have highlighted the importance of non-financial risk factors. From April to November 2020, 33% of credit rating actions among U.S. public finance entities were related to ESG. To mitigate risks, a growing number of investors are adopting sustainable strategies.
- Social movements
Calls for equity have put a focus on investing in underserved communities, such as those with low-income populations or higher proportions of people of color. ESG municipal bonds can help finance initiatives such as accessible education, access to basic services, and quality healthcare.
- Climate change adaptation
Many municipalities are exposed to physical risks such as flooding and fires, but few currently disclose them. As a result, there is a push for issuers to provide more disclosures, and explain how their bonds will mitigate these risks. For example, a municipality facing flood risk could issue a bond to upgrade storm water management.
It’s clear that global trends are accelerating the shift to ESG municipal bonds. But how can investors determine which bonds are sustainable?
Identifying ESG Municipal Bonds
Traditionally, investors can seek green or social-labeled bonds—but these securities only make up 2% of the market. Investors who follow this approach have been missing substantial opportunities, as many sustainable bonds don’t have a green or social label.
Fortunately, there’s another option. Investors can follow Wells Fargo Asset Management’s (WFAM) positive impact framework, which includes sustainable bonds if they meet at least 1 of 3 main criteria.
- Use of proceeds: Are the bond’s proceeds used for a project that offers tangible environmental or social benefits?
- Issuer ESG Impact: Does the bond issuer provide environmental or social benefits through their services or operations?
- Underserved population: Does the bond issuer serve an underserved population group?
By applying the positive impact framework to an existing municipal bond portfolio, more than two-thirds of the bonds demonstrated positive sustainability attributes.
How does this approach work in practice? Consider two bonds issued by the same county.
|Bond A||Bond B|
|Type||General obligation*||General obligation*|
|Use of proceeds||Flood control infrastructure||Sports stadium enhancements|
|Sustainable outcomes expected?||Yes||No|
*General obligation bonds are backed by the credit and taxing power of the issuer, rather than from the revenue of a specific project.
While both are general obligation bonds, only the bond expected to drive sustainable outcomes (Bond A) is included.
Using this framework, investors can go beyond labels to identify a wide array of ESG municipal bonds. Not only that, the ESG municipal bond market is expected to grow, from a total issuance of $19.7 billion in 2020 to a projected $30.0B in 2021.
Issuance of ESG municipal bonds is likely to increase to supplement federal financing. The Biden Administration has pledged a $2 trillion dollar investment in sustainable infrastructure, including water systems and roads & bridges. New, greener opportunities are on the horizon.
Plant-based Alternatives: 5 Ways They Benefit the Planet
Conventional meat production is responsible for 14.5% of the world’s CO2 gases. Here we visualize the benefits of plant-based alternatives.
Plant-based Alternatives: 5 Ways They Benefit the Planet
Over the past decade, people have become increasingly interested in plant-based diets. In fact, there has been a 600% increase in people turning vegan in the U.S. since 2014.
Because of this, the plant-based foods market could make up roughly 7.7% of the global protein market by 2030, with a value of over $162 billion, up from $29.4 billion in 2020.
Although initially promoted for their gambit of health benefits, recent studies have shown that switching to a plant-based diet has a list of environmental benefits too.
The following infographic by Billy Goat Brands (CSE: GOAT) (“GOAT”) explores the environmental impacts of conventional meat production and how plant-based alternatives can lessen this impact and be a viable dietary solution for the future.
Environmental Benefits of Plant-based Alternatives
Increased population growth has caused meat production to increase exponentially. The livestock sector is one of the most significant contributors to urgent environmental problems. Conventional meat production is responsible for 14.5% of the world’s greenhouse gases.
Water, land, and ocean conservation have become a major concern for livestock breeding and meat production. It also causes a loss of soil nutrients, leaving land unusable in the future.
Here are five ways in which the production of plant-based alternatives benefit the environment:
- Climate Change: The production of plant-based meats causes very low greenhouse gas emissions and can in fact reduce emissions caused by conventional meat production by 70%.
- Land Conservation: Switching to a plant-based diet could also reduce global agricultural land use from 4 to 1 billion hectares.
- Water Conservation: A plant-based diet can reduce water consumption by up to 50%, saving 14 trillion gallons of water annually.
- Cleaner Water: Creating plant-based alternatives does not require excessive spraying of chemicals and pesticides, reducing aquatic nutrient pollution.
- Ocean Conservation: Consumption of plant-based imitation fish can stop the practice of overfishing that has caused oceanic dead zones across the world.
Plant-based alternatives offer a solution to these problems. They produce minimal greenhouse gases and require a fraction of the cropland and water needed for conventional meat production.
Health Benefits of Consuming Plant-based Alternatives
Plant-based diets are considered to be naturally nutritious and healthy. For years, registered dietitians and food scientists have touted the perks of eating plants and cutting back on meat.
Here are some amazing benefits of choosing a plant-based diet:
Lower Your Blood Pressure
Several studies have shown that sticking with a plant-based diet can reduce blood pressure, reducing your risk of further health complications. A recent study also found that vegetarians had a 34% lower risk of developing hypertension than those who consume meat.
Prevent Type-2 Diabetes
Our diet and diseases like type 2 diabetes have had a long-standing link. Plant-based diets, especially when rich in high-quality plant foods, are associated with a substantially lower risk of developing type-2 diabetes by over 30%.
Provide Healthy Body BMI
Studies have shown that the mean BMI for vegans was 23.6, while for nonvegetarians, it was 28.8, which qualifies as overweight. The various fibers and antioxidants in plant-based foods reduce fatty lipids in the body and promote a healthy BMI.
Decrease Your Risk of Cancer
According to the American Institute for Cancer Research (AICR ), the best way to source cancer-protective nutrients, including fiber, vitamins, minerals, and phytochemicals, is to eat a diet rich in vegetables and fruit, grains, beans, nuts, seeds, and some animal foods.
Improve Brain Capacity
There is veritable proof that a plant-based diet may improve the cognitive functions of your body. In some rare cases, it is linked to enhancing impairments in Alzheimer’s patients and reducing the risk of dementia.
Most Popular Plant-based Alternatives
There are a variety of plant-based alternatives that are available for consumption in the market today. Meat and milk alternatives are the most popular types of current plant-based alternatives available. Many popular fast-food chains have now adopted using plant-based meats in their menus.
Similarly, in order to combat the extreme exploitation of fisheries worldwide, efforts are being made to create plant-based seafood alternatives for consumption.
Through brands like Sophie’s Kitchen, Billy Goat Brands (CSE: GOAT) gives people the opportunity to invest in companies that offer healthy and environmentally conscious plant-based alternatives for consumption.
Go to billygoatbrands.com to learn more about investing in a plant-based future today.
Visualized: The Circular Economy 101
How does a circular economy work? In this infographic, we show the benefits of a circular economy, and the key factors driving its growth.
Visualized: The Circular Economy 101
The principles of a circular economy trace back as far as 3,000 years.
Archeological evidence shows that Romans recycled trash following the eruption of Mount Vesuvius in 79 AD. Roughly 200 years later, people recycled glass during the Byzantine Empire. Fast-forward to today and circular economy strategies are projected to generate trillions in economic output by 2030.
But how does the circular economy work? This infographic from MSCI provides a guide to circular economies—from circular business models to circular technologies.
No Time to Waste
First, let’s start at the root of the problem, our current consumption trends:
- Raw Materials: Global extraction is projected to double by 2060.
- Textiles: 85% of clothing and textiles are discarded.
- Waste: Global waste is projected to rise 70% by 2050.
- Water: 80% of global wastewater is untreated or reused before returning back to the ecosystem.
To change consumption patterns and reduce waste, consumer behaviors, business models, and policies will need to change. But the big question is how?
To answer this problem, the concept of a circular economy is gaining traction.
What Is a Circular Economy?
A circular economy is centered on the idea of resources being kept as long as possible within the economic system, where materials that have undergone an entire lifecycle, from production to end stage, are returned to the economic system as an input.
Above all else, a circular economy is based on sustainable life cycles.
Circular Economy Growth
In 2019, BlackRock launched an inaugural Circular Economy fund. Since then, it has attracted $2.1 billion in investment. A number of the world’s largest asset managers have followed suit.
Policy-driven agendas are also focused on the circular economy shift:
- Paris Climate Agreement
- UN Sustainable Development Goals (SDG 12, 11, 9, 13)
- European Green Deal Circular Economy Action Plan
- 2019 African Durban Declaration
- China’s 5-Year Circular Economy Plan
- Circular economy strategies across Latin American countries
Given the steep cost of linear economic models, governments are beginning to pay attention to the merits of a circular economy.
The Upside of a Circular Economy
Circular economy principles aligned with sustainability offer the following advantages:
- Reducing GHG emissions: 9.3 billion tonnes of CO₂e could be prevented by 2050 if circular economy strategies are applied across the steel, aluminum, cement, food, and plastic sectors.
- Preserving long-term biodiversity: ~50% decrease in harmful effects on farm-level biodiversity through applying circular strategies.
- Improving ocean health & water quality: 80% reduction in plastics entering the ocean globally by using reclamation, recycling, and reduction strategies, among others.
- Economic growth & job creation: $4.5 trillion global economic opportunity by 2030 through spurring innovation in waste reduction.
Importantly, circular strategies, technologies, and transition companies are looking beyond traditional economic models.
5 Business Models in a Circular Economy
From alternative energy to bio-based and recyclable materials, the most effective circular business models are ones that create obvious value.
Let’s consider five circular economy business models and where they can be applied in the supply chain. Additionally, some of the models can be adapted to any part of the supply chain.
|Business Model||Supply Chain Example|
|1. Circular supplies/Circular design||Product design/R&D
Procurement/raw materials acquisition
|2. Resource recovery|
(Recycle, Waste as a resource)
Material & product manufacturing
|3. Product life extension |
(Remanufacture, Resell, Upgrade)
Sales & marketing
|4. Share||Product use
Material & product manufacturing
|5. Product as a service||Logistics
Today, circular models present opportunities in fashion, food systems, mining and metals, among others.
How are Circular Economy Indexes Created?
A circular economy theme is built on two key dimensions:
1. Smarter technologies: Providing circular technologies
- Single-use plastics alternatives
- Digital technologies that replace resource-intensive products
2. Resource efficient processes: Maximizing materials and minimizing impacts (e.g. emissions)
- Improved package materials
- Efficient processes that reduce land degradation and promote diversity
Then, MSCI identifies areas of innovation that support a circular model. Consider the following circular technologies, which are produced by companies that contribute to a circular economy theme “end-state” through their products and services.
|7 Circular Technologies||Example|
|1. Renewables & energy efficiency||Replacing oil-based plastic with compostable materials
|2. Sharing economy||Peer-to-peer accommodation
|3. Future mobility||Electric vehicles
|4. Internet economy||Online markets|
|5. Water sustainability||Wastewater treatment systems|
|6. Plastic sustainability||Companies using only one type of polymer for packaging|
It also looks at circular transitions, which are companies that enable the shift to a circular economy through their management of related issues.
|3 Circular Transitions||Example|
|1. Natural resources management||Deforestation
|2. Water resources management||Smart metering devices|
|3. Plastic transition||Biodegradable plastics|
As a result MSCI has created a range of Circular Economy related indexes:
- Natural Resources Stewardship
- Sustainable Water Transition
- Plastics Transition
- Renewables & Energy Efficiency
- Sharing Economy
It’s worth noting that what is measurable today will likely only expand, considering the evolving regulatory frameworks and thinking around a circular economy,
The Value of a Circular Economy
Through looking at circular economy innovation, we yield three important insights:
- Competitive earnings
- New economic models
- Sustainable solutions
For a growing number of investors, companies, and researchers, a circular economy provides a wide scope of opportunities ranging from single-use plastics alternatives to water sustainability.
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