Muni Impact | December 12, 2022

Cities embrace ESG in muni bonds even as overall market dips

Andrea Riquier
ImpactAlpha Editor

Andrea Riquier

ImpactAlpha, Dec. 12 – Municipal bond issues are down 17% this year compared to 2021 as interest rates have spiked, according to SIFMA. But state and local government issues under environmental, social and governance, or ESG, frameworks are up.

A note from Barclays’ municipal research group forecasts $45-50 billion of such local bond issuance in 2023, a roughly 20% increase compared to about $40 billion this year and only $19 billion in 2020.

New York City and Atlanta each recently issued their first social bonds. Both sales were oversubscribed, helping the cities drive down their cost of capital. The growth of municipal ESG debt is a trend that is “firmly entrenched for the foreseeable future,” the Barclays’ Mikhail Foux wrote in the Dec. 1 note. 

In municipal finance, as in other pockets of the financial markets, there’s little agreement on what ESG means, let alone how it should be measured and tracked. In some Republican-led states, legislators are crusading against ESG labeling – and even divesting state funds, in some cases.