As the United States grapples with the increasing severity of weather events, there's a rising financial burden on states and local governments to fortify against these conditions. This scenario has paved the way for a specialized market where investors are channeling their funds into projects designed to lessen the impact of these extreme weather phenomena.
A select group of investors is gravitating towards separately managed accounts (SMAs), collaborating with financial advisors to create personalized investment portfolios. These portfolios are specifically geared towards funding initiatives that aim to reduce the occurrence of natural disasters such as floods.
Lauren Kashmanian, a leading figure in portfolio management and responsible investing at Parametric Portfolio Associates, highlights a surge in client interest towards investing in sustainable projects. These include initiatives focused on providing clean drinking water and harnessing renewable energy sources.
This burgeoning interest in environmentally and socially responsible investment funds emerges amidst scrutiny from certain political quarters, notably in Texas. Despite this, the urgency to finance climate adaptation projects continues to intensify.
Analysts at Municipal Market Analytics predict a potential doubling in municipal bond market borrowings over the next decade. This increase is expected to support climate adaptation efforts alongside the resumption of delayed maintenance and infrastructure ventures.
According to Bloomberg Intelligence’s Climate Damages Tracker, extreme weather events inflicted over $400 billion in damages across the US last year. Andrew John Stevenson of Bloomberg Intelligence anticipates a shift in the financial responsibility for these damages from federal to state and local levels.
In response to investor demand for value-aligned investment opportunities, Breckinridge Capital Advisors has introduced customized funds, including one that addresses climate risks. Ruth Ducret, a senior research analyst at Breckinridge, emphasizes the firm’s commitment to investing in projects that serve underprivileged communities and mitigate climate change effects.
Recently, Breckinridge unveiled three new funds tailored to specific client values, addressing climate risk, essential-service infrastructure, and net-zero emissions goals. Despite the challenges of maintaining high credit quality investments, Breckinridge continues to innovate in response to client interests.
SMAs have been gaining traction, with assets in these accounts seeing significant growth. Vikram Rai of Wells Fargo & Co. notes that assets in SMAs have more than doubled over the past decade, signifying their increasing popularity among affluent investors.
The performance of green bonds has been on par with the broader municipal market, which is crucial for money managers who are obligated to optimize profits while investing in community-beneficial projects.
Investment managers like Marc Uy from AllianceBernstein and Jonathan Bailey from Neuberger Berman emphasize the importance of detailed risk assessment and the potential for targeted investments across various states to address climate challenges.
With municipal yields being attractive and the visible impact of extreme weather, investors are increasingly interested in securing competitive yields while contributing positively to their communities.
