Making a Difference: Municipal Bond Markets to Disrupt Systemic Inequities

About This Investment

The $4 trillion municipal bond market is one of the largest pools of private investment capital flowing into America's states and localities, shaping the built environment in communities across the country and directly impacting health and equity. Through a $4 million grant, the Robert Wood Johnson Foundation is seeking to identify the factors in a municipal bond issuance that can create progress toward equity. In addition, the grant will fund the development of tools that issuers can use to center equity in municipal bond-funded infrastructure investments and measure how the factors that shape equity are changing in a jurisdiction over time. This first-of-its kind effort aims to empower communities across America to leverage bond market investments to disrupt historic, systemic racial inequities.

Why It Is Needed

Public infrastructure investments play a critical role in creating access to public transportation, quality affordable housing, education, water and sewer services, and other drivers of health and equity. Putting an equity lens on market strategies and investment practices that fund infrastructure can serve as a powerful intervention for historically underserved groups—especially residents of low-income communities and communities of color.

Institutional investors, underwriters, investment bankers, rating agency staff, and other stakeholders who work with issuers of municipal securities have been placing greater attention on how equity and other demographic factors impact municipal credit quality, or how centering equity in a project's plan of finance can lead to stronger social outcomes, and other important questions. Bond issuers also often lack tools, data, and other resources to evaluate how equity is affected in projects funded by municipal bonds or whether equity is changing in a jurisdiction over time, particularly in low-resource settings with the highest needs.

Since 2019, the municipal bond market experienced a dramatic increase in "social bonds" issuance—bonds that are meant to achieve positive social outcomes. More than twice as many social bonds were issued in 2020 than 2019 according to S&P Global ratings. Recognizing the growth of the market, the International Capital Markets Association (ICMA) developed “Social Bonds Principles” to provide important guidance to issuers of social bonds. And recently, several leading investment firms (BlackRock Inc., Goldman Sachs Asset Management, Lord, Abbett & Co., Morgan Stanley Investment Management and Vanguard Group Inc.) partnered with two minority-owned underwriters (Loop Capital Markets and Siebert Williams Shank & Co.) to develop a survey for governments about efforts to address issues including race-based inequality. But, despite these efforts, there is no common framework to center equity in all phases of municipal bond issues.

The project funded by this grant seeks to develop an equity framework, as well as tools, data, and evaluation metrics to encourage and enable municipal bond market stakeholders to integrate racial equity as a core criterion of the municipal bond investment process and enable them to engage in better measurement, evaluation, and reporting of equity outcomes alongside traditional public finance criteria.

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