In this episode, I speak with R. Paul Herman, CEO and Founder of HIP Investor about the risks that climate change pose to our communities, and the growing demand for investments in sustainable projects. We discuss his firm’s approach to rating corporations and municipal issuers for their impact across a plethora of sustainability metrics.
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Climate Change and The Municipal Bond Market
Paul and I begin our conversation by discussing the growing demand and need for investments in sustainable projects. In particular, we discuss what makes for a sustainable community and what goes into evaluating the sustainability of municipal bonds.
As the effects of climate change seem to be more frequent and destructive, investors have increasingly turned toward opportunities to direct funds not only for profit, but for good. Sustainable mutual funds and ETFs, as tracked by Morningstar, have seen inflows of $46 billion year-to-date through July 2021. This is well on the way to surpassing last year’s record flows of $52 billion. Similarly, municipal bond mutual funds and ETFs saw $75 billion of inflows year-to-date, which is already past 2020’s full year flows of $57 billion. These two trends converge into the main topic of the discussion I had with Paul about sustainable munis.
H.I.P. refers to Human Impact and Profit, which very succinctly alludes to HIP’s unique approach of measuring future risk, return potential and net impact on society. Paul explains how HIP Investor prioritizes quantitative data of actual results, and how evaluating performance can be more powerful than only adopting policies.. Paul explains how HIP Investor produces ESG impact ratings, ratings on UN Sustainable Development Goals, climate threat resilience ratings and opportunity zones to assess overall sustainability. As an example of how these considerations play out in communities, Paul compares and contrasts the cities of Seattle and Memphis.
The municipal bond market plays an important role in the fight against climate change. Not only is this market a destination for investors seeking potential tax-free income, but for all of us, the projects they finance will impact how they live and thrive.
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