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September 08, 2011
Sustainable Initiatives Supported by Fixed Income Investing
    by Robert Kropp

A white paper from Community Capital Management describes five categories of fixed income investments that can support environmental and social goals while providing competitive returns.


Sustainable fixed income investment products allow investors to integrate environmental, social, and corporate governance (ESG) criteria into their decision-making, while providing both moderate returns and low volatility when compared to other asset classes.

Community Capital Management, a Florida-based investment advisor, has been providing fixed income investment services to institutional investors since 1998, focusing on government-related securities and other products that can produce competitive returns and promote community development. In a new white paper, the firm surveys the current state of sustainable fixed income investing.

As with sustainable investing in any asset class, the paper recommends that investors do their homework first. For fixed income investing in particular, the paper states, "The additional layer of research associated with sustainable fixed income investments provides an added layer of transparency by detailing the use of bond proceeds to analyze the project's sustainable benefit or by providing a deeper understanding of a company."

An example of a fixed income investment in which transparency can both ensure sustainable practice and reduce investment risk is corporate bonds. These products "are debt obligations issued by companies to finance capital investment and operating cash flow," the paper reports, and organizations such as the Interfaith Center on Corporate Responsibility (ICCR) "promote corporate transformation from the inside by engaging and advising management towards sustainable practices that ensure long term business growth while measurably improving their environmental and social impacts."

Other fixed income products studied in the paper include municipal bonds, which are issued by state or local governments to raise capital. Several governments, the paper states, "have established bond programs to support sustainable initiatives such as energy efficiency, renewable energy, and other vital environmental programs."

Also studied are single family agency mortgage-backed securities, and multi-family agency mortgage-backed securities, both of which are issued by Ginnie Mae, Fannie Mae and Freddie Mac. Investment in these products can support green building initiatives, which, according to the US Green Building Council, is expected to support eight million jobs and generate $554 billion in Gross Domestic Product (GDP) by 2013.

Government-guaranteed loans and government-related securities, issued by agencies such as the Department of Housing and Urban Development (HUD) and the Small Business Administration (SBA), support such sustainable practices as brownfields cleanup, energy efficiency, and siting new small businesses in underserved communities.

The current market estimate for fixed income investment is $3.5 billion to $5 billion, the paper reports. As strategies such as the recently expired Build America Bonds (BABs) and the World Bank Green Bonds continue to be launched, the paper states, sustainable fixed income investments will continue to grow.

 

 
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