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AB: Investing With Impact - How Municipal Bonds Are Leading the Way

Issues like water scarcity are felt most intensely at the local level. That makes it incumbent on municipal bond issuers to lead the response.

AB: Investing With Impact - How Municipal Bonds Are Leading the Way

Issues like water scarcity are felt most intensely at the local level. That makes it incumbent on municipal bond issuers to lead the response.

Published 03-06-24

Submitted by AllianceBernstein

Exit of a tunnel

Municipal bond issuers are responsible for building and supporting the physical infrastructure and the public goods and services that enable citizens to participate more in an inclusive economy. That makes the roughly $4 trillion US municipal bond market fertile ground for impact investing. Challenges like supplying clean water and improving access to quality healthcare can both be tackled through environmentally, socially, and financially productive investments in communities and institutions.

Leading When Water Is Lacking

As we’ve seen over the past few years, access to water can’t be taken for granted. The country faces historic drought conditions in the West and other regions. For instance, the Rio Grande, a river that countless Southwestern US communities depend on, faces persistent drought and increased water demand.

These challenges disproportionately impact low-income communities. In one study, 14% of respondents said a $12 monthly increase in water bills would lead them to cut back spending on groceries and basic medical care.1 Long-term investments in projects that diversify water sources, combined with water conservation strategies, can go a long way toward improving drought resiliency and reducing the financial burden communities face.

Take El Paso Water, which provides water, wastewater, reclaimed water and drainage services to more than 678,000 residents of El Paso, Texas, and surrounding areas. El Paso’s median household income is 76% of the state’s median; its 18% poverty rate is 29% higher than the statewide rate.

Since El Paso adopted its Water Conservation Ordinance in the early 1990s, per capita water consumption has fallen by roughly 35% and peak water demand by 17% (Display). Strategies implemented include reducing water waste in utility operations through initiatives such as leak detection and maintaining a rate structure that encourages conservation. Education is a lynchpin in galvanizing residential and commercial customers to be more efficient.

The issuer understands the population it serves, so its rates are affordable relative to national medians. And a change in the most recent budget waives the water-supply replacement charge for El Paso’s lowest water users. In fiscal year 2018–19, roughly 50% of all goods and services bought by the issuer were sourced from small, minority, and women-owned businesses, and almost 34% of its construction-project spending was directed to those vendors. By understanding the unique needs of the communities they serve and implementing long-term strategies to address them, municipal issuers like El Paso Water create more equitable and sustainable systems. It’s a model that also applies to healthcare institutions.

Water Conservation at Work in El Paso, Texas

Opening Access to Care

Consider that for patients, roughly 20% of health outcomes are determined by the quality of healthcare from providers. The other 80% stem from factors often referred to as social determinants of health (SDoH): substandard housing, poor education systems, neighborhood violence, drug addiction, violence, and food insecurity.2

Recognizing this, many healthcare institutions are transitioning their missions from treating disease to also helping prevent it. For example, Temple University Health—a safety-net hospital—was originally founded to care for patients with limited incomes and ensure access to care in its surrounding Philadelphia neighborhoods. Today, it serves a population in which 45% of households are below the federal poverty level3—versus only 7% in adjacent Montgomery County. Roughly 33% of Temple Health’s gross revenues come from Medicaid—that’s more than double the average share among the nonprofit hospitals tracked by Moody’s (Display).

Temple Health’s impact extends well beyond the bedside. Its Center for Population Health, established in 2014, includes patient-centered medical homes, chronic-disease management programs for high-risk populations using nurse navigators, an inpatient and outpatient community-health work program, peer coaching, and central access for scheduling and follow-ups.

To help patients with complex social and medical-health issues, Temple’s Community Health Worker team visits homes, schedules and attends doctor appointments, coordinates transportation, and connects with other social supports to improve quality-of-life and treatment outcomes.

In 2020, Temple launched the Multi-Visit Patient Clinic to provide a full continuum of care for patients with high emergency-department use and frequent inpatient admissions. On discharge, community health workers link patients with follow-up healthcare, provide meals and transportation, visit homes, and connect with other social supports. Clinic patients have reduced emergency department use by 40% and inpatient use by 21% while increasing the use of outpatient services by 50%,4 demonstrating that they’re seeking more appropriate care in effective settings.

Temple Health also collaborated with local nonprofits, launching a two-year program to help 25 homeless Medicaid patients who frequent hospital emergency departments. Patients are provided free housing and caseworkers to connect them with health and social services. Caseworkers assist patients by furnishing apartments, connecting them with healthy meals, and helping them apply for income assistance such as Social Security.

This program isn’t large, but its impact is. When we compare the first five months that participants were housed to their experience before the program, there was a 75% reduction in emergency department use, a 79% reduction in inpatient hospital admissions, and a 50% increase in outpatient services use.5

Providing Capital for Medicaid-Dependant Health Systems

Clear, Measurable Impact

Ultimately, the municipal bond market and impact strategies can play huge roles in channeling capital to financially productive uses that also help address environmental and social issues disproportionately affecting marginalized communities. The key is to identify strategies that employ meaningful data and project relevant key performance indicators. These play a vital role in developing better insights on investments and judging how effective they are. Investors play a critical role in supporting municipal issuers that are making a positive impact in their communities. By putting capital to work thoughtfully, they can help build a more equitable and sustainable future for all.


The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams. Views are subject to revision over time.

Learn more about AB’s approach to responsibility here.

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AllianceBernstein (AB) is a leading global investment management firm that offers high-quality research and diversified investment services to institutional investors, individuals, and private wealth clients in major world markets. We believe corporate responsibility, responsible investing and stewardship are intertwined. To be effective stewards of our clients’ assets, we strive to invest responsibly—assessing, engaging on and integrating material issues, including environmental, social and governance (ESG), and climate change considerations in most of our actively managed strategies. We also believe that strive to hold ourselves as a firm to similar practices that we ask of issues. Our stewardship practices, investment strategy and decision-making are guided by our purpose, mission and values.

Our purpose—pursue insight that unlocks opportunity—inspires our firm to act responsibly. While opportunity means something different to each of our stakeholders; it always means considering the unique goals of each stakeholder. AB’s mission is to help our clients define and achieve their investment goals, explicitly stating what we do to unlock opportunity for our clients. We became a signatory to the Principles for Responsible Investment (PRI) in 2011. This began our journey to formalize our commitment to identify responsible ways to unlock opportunities for our clients through integrating material ESG factors throughout most of our actively managed equity and fixed-income client accounts, funds and strategies. AB also engages issuers where it believes the engagement is in the best financial interest of its clients.

Because we are an active manager, our differentiated insights drive our ability to deliver alpha and design innovative investment solutions. ESG and climate issues are important elements in forming insights and in presenting potential risks and opportunities that can have an effect on the performance of the companies and issuers that we invest in and the portfolios that we build.

Our values provide a framework for the behaviors and actions that deliver on our purpose and mission. Values align our actions. Each value emerges from the firm’s collective character—yet is also aspirational.

  • Invest in One Another means that we have a strong organizational culture where diversity is celebrated and mentorship is critical to our success. When we invest in one another, we empower our employees to reach their potential, so that they can help our clients realize theirs. This enables us to partner with clients to design and deliver improved investment outcomes.
  • Strive for Distinctive Knowledge means that we collaboratively identify creative solutions to clients’ economic, ESG and climate- related investment challenges through our expertise in a wide range of investment disciplines, close collaboration among our investment experts and creative solutions.
  • Speak with Courage and Conviction informs how we engage our AB colleagues and issuers. We seek to learn from other parts of our business to strengthen our own views. And we engage issuers for insight and action by sharing ideas and best practices.
  • Act with Integrity—Always is the bedrock of our relationships and has specific meaning for our business. Unlike many other asset managers, we’re singularly focused on providing asset management and research to our clients. We don’t engage in activities that could be distracting, or create conflicts—such as investment banking, insurance writing, commercial banking or proprietary trading for our own account. We are unconflicted and fully accountable.

As of September 30, 2023, AB had $669B in assets under management, $458B of which were ESG-integrated. Additional information about AB may be found on our website,

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