Editor’s note: ImpactAlpha has partnered with HIP Investor to highlight upcoming bond issues with social and/or environmental significance. Disclaimer: Nothing in this post or on ImpactAlpha.com shall constitute an offer to sell or solicitation of an offer to buy bonds.

• CUSIP bond identifier: 800618CQ1
• Issuer and obligor: City of Sanford, NC
• Impact entity rated by HIP: City of Sanford (NC Water)
• Muni sector: Water utilities
• Closing date: Aug. 1, 2024
• Bond amount: $21.9 million
• Coupon: 4%
• HIP Impact Rating: 56.3 of 100, connoting “net positive”
• Opportunity Zones located in the issuing entity: one Opportunity Zone, encompassing 3,646 residents (of 63,285 residents in Lee County, NC)
• Climate Threat Resilience Rating: 48.6 of 100, connoting “moderate climate risk”

The North Carolina city of Sanford is issuing a total of $71.1 million in municipal bonds to fund critical improvements to its water and wastewater infrastructure. These bonds will finance the expansion of Sanford’s water filtration facility to accommodate the city’s present needs and future growth. 

The upgrades will more than double the facility’s capacity from 12 million gallons per day to 30 million gallons per day. The city will also integrate new advanced treatment technologies, including granular activated carbon filtration, which is designed to remove unregulated contaminants from the water supply. This improvement will boost drinking water quality across the region and reduce the presence of PFAS “forever” chemicals in the water supply. 

Sanford has so far raised $21.9 million through the issuance. 

HIP impact analysis 

HIP Investor rates Sanford’s water utility 56 on a 100 point scale, placing it in the middle range of more than 52,000 peer water utilities in the US. The city demonstrates positive performance in HIP impact pillars of health and trust. For example, from 2018 to 2023, the city had only one EPA chemical and microbial contamination violation, compared to a national average of 6.7 violations. Sanford also reported zero lead and copper-related violations in 2023.

Sanford’s performance lags, however, in addressing unregulated contaminants. Between 2018 to 2022, 12 types of unregulated contaminants were detected in Sanford’s water supply, including per- and polyfluoroalkyl substances (PFAS), commonly known as “forever chemicals.” PFAS are a group of synthetic chemicals that persist in the environment and the human body. Over time they can cause health issues such as immune system suppression and an elevated risk of some types of cancer. 

The city plans to use some of the bonds’ prceeds to reduce these contaminants in its water supply.

Impact on diverse communities

Sanford has one of the most diverse communities in North Carolina, with 25.3% Black residents and 30.1% Hispanic or Latino residents — both figures higher than the North Carolina average of 20.6% and 10.2%, respectively. Sanford also has a high poverty rate of 21.5%, which exceeds the state’s average of 13.3%. 

With its water bond issuance, Sanford is enhancing infrastructure and improving the quality of life and health of its residents, including the most vulnerable.

The bonds could also support economic development. By improving water infrastructure, Sanford could position itself as a competitive location for businesses. Sanford’s ability to provide water to the Triangle Innovation Point megasite was crucial to attracting Vietnamese electric car maker VinFast to build its first North American manufacturing plant in eastern Chatham County.

Climate risk considerations

Our research at HIP shows that credit ratings and climate risk are not always accounted for in muni bond yields. Research from the NIH examining 712,000 municipal bonds found that physical climate risk scores had little to no impact on yields, despite the growing threat climate change poses to public infrastructure. Similarly, HIP compared our climate-threat resilience to Moody’s credit ratings and found almost no correlation between the two factors, even though impact investors should consider then when evaluating and investing in muni bonds. 

Sanford’s HIP climate threat resilience rating is 48.6%. Risks include heat, cold, wind and water. Low climate resilience in water infrastructure can contribute to water pollution in several ways. For example, increased stormwater runoff from more frequent and intense rainfall events can overwhelm systems and carry pollutants into water sources. 

More climate risk awareness from impact investors enables municipalities like Sanford to invest in climate resilience and adaptation measures. Ultimately, ensuring equitable and sustainable access to municipal bond financing will be crucial for communities across the country as they seek to upgrade aging infrastructure and adapt to a changing climate.

DISCLOSURES: HIP Investor Inc. is a state-registered investment adviser in several jurisdictions, and HIP Investor Ratings LLC is an impact-ratings firm evaluating impact and ESG on 126,000 municipal entities, 270,000 muni-bond issuances, and 14,000 corporates for equities and bonds. HIP Impact Ratings are for your information and education – and are not intended to be investment recommendations. Past performance is not indicative of future results. All investments are risky and could lose value. Please consult your investment professionals to evaluate if any investment is appropriate for you, your goals, and your risk-return-impact profile.

Stella Yao is an ESG and impact investing analyst at HIP Investor Ratings.