AB: Investing With Impact - How Municipal Bonds Are Leading the Way

NORTHAMPTON, MA / ACCESSWIRE / March 5, 2024 / AllianceBernstein:

Issues like water scarcity are felt most intensely at the local level. That makes it incumbent on municipal bond issuers to lead the response.

Municipal bond issuers are responsible for building and supporting the physical infrastructure and the public goods and services that enable citizens to participate more in an inclusive economy. That makes the roughly $4 trillion US municipal bond market fertile ground for impact investing. Challenges like supplying clean water and improving access to quality healthcare can both be tackled through environmentally, socially, and financially productive investments in communities and institutions.

Leading When Water Is Lacking

As we've seen over the past few years, access to water can't be taken for granted. The country faces historic drought conditions in the West and other regions. For instance, the Rio Grande, a river that countless Southwestern US communities depend on, faces persistent drought and increased water demand.

These challenges disproportionately impact low-income communities. In one study, 14% of respondents said a $12 monthly increase in water bills would lead them to cut back spending on groceries and basic medical care.¹ Long-term investments in projects that diversify water sources, combined with water conservation strategies, can go a long way toward improving drought resiliency and reducing the financial burden communities face.

Take El Paso Water, which provides water, wastewater, reclaimed water and drainage services to more than 678,000 residents of El Paso, Texas, and surrounding areas. El Paso's median household income is 76% of the state's median; its 18% poverty rate is 29% higher than the statewide rate.

Since El Paso adopted its Water Conservation Ordinance in the early 1990s, per capita water consumption has fallen by roughly 35% and peak water demand by 17% (Display). Strategies implemented include reducing water waste in utility operations through initiatives such as leak detection and maintaining a rate structure that encourages conservation. Education is a lynchpin in galvanizing residential and commercial customers to be more efficient.

The issuer understands the population it serves, so its rates are affordable relative to national medians. And a change in the most recent budget waives the water-supply replacement charge for El Paso's lowest water users. In fiscal year 2018-19, roughly 50% of all goods and services bought by the issuer were sourced from small, minority, and women-owned businesses, and almost 34% of its construction-project spending was directed to those vendors. By understanding the unique needs of the communities they serve and implementing long-term strategies to address them, municipal issuers like El Paso Water create more equitable and sustainable systems. It's a model that also applies to healthcare institutions.