Our firm has intentionally expanded its focus on sustainable investing over the past decade—in part because we believe it helps us make better investment decisions, and in part because we believe it helps our clients make a positive impact on the world with their capital. Matters of racial and environmental justice are important to us and to our clients, and we have always considered these factors as part of our ESG research and our process for evaluating investments.

Municipal bonds, and the projects that they fund, can be connected to justice within a community or region. Municipalities can use bond proceeds to provide essential services like water utilities, public transit systems, public education, housing subsidies and more. As we will discuss in this article, these initiatives can be structured so that they increase diversity, equity and inclusion in a community, but in some cases, they can decrease equality and justice. We take these potential outcomes seriously as municipal bond investors. Because there is fairly high correlation of returns between municipal bonds of similar credit quality and duration, we can be selective regarding matters of justice when it comes to the issuers and the projects that we choose for inclusion in our sustainable fixed income strategies.

Munis Can Be a Part of the Solution…

We actively pursue opportunities to finance entities and projects that, in our view, are positively addressing some of the root causes of inequality in society. As investors, we tend to generally favor revenue bonds over general obligation bonds, and this emphasis in our portfolios allows us to target investments with specifically earmarked uses for the funds raised by a given bond, such as housing finance authorities that are expanding access to affordable housing, hospitals addressing health disparities in their communities and higher education systems that are promoting diversity and inclusion on campus.

This approach does not come at the expense of credit quality. In fact, we believe that early investments in social programs and community initiatives potentially can lead to more sustainable and resilient communities with improved educational, health and economic outcomes. Such scenarios can potentially strengthen the credits issued by those communities over the long term.

The specific issues we seek to investigate vary by municipal sector. In the table below, we highlight three municipal sectors, and offer examples of some of the key issues we consider to be highly relevant in those sectors, for purposes of illustration:

Hospitals Water & Sewer Utilities Transportation
  • Access & Affordability
  • Quality of Care & Patient Satisfaction
  • Environmental Management
  • Labor Management
  • Environmental Management
  • Climate Change Vulnerability
  • Public Health & Safety
  • Employee Safety
  • Access to Public Transit
  • Land Use & Community Engagement
  • Public Safety
  • Environmental Management


Here are a few examples of recent investments of ours, with the potential to positively impact justice in their communities:

  • The Harris County Texas Flood Control District funds projects aimed at preventing and mitigating flooding. Traditionally, these projects were prioritized based on property value, but the District recently began prioritizing projects using the CDC’s Social Vulnerability Index. The new methodology favors disadvantaged neighborhoods—often with populations predominantly of color—that would have the hardest time recovering from flooding events. Further, its bonds are backed by all property taxes within the district, which means that disadvantaged neighborhoods should receive priority attention from the District, while the costs of those projects are borne by the District’s strong and diverse overall economy.
  • Minnesota Children’s Hospital, acknowledging health disparities in the state, recently hired its first Chief Equity and Inclusion officer, responsible for developing and implementing comprehensive equity, inclusion, and diversity strategy throughout the organization. Minnesota Children’s is deeply focused on improved patient outcomes for all children, in a way that helps to reduce what it views as “pervasive health inequities” that currently exist in Minnesota. It conducts its Community Needs Health Assessment—a study that all hospitals conduct to determine program and budget priorities—using a racial equity lens, so it can effectively incorporate underlying factors like poverty that impact children’s health into its plans. Its management and executive compensation plans are also tied to factors related to racial equity.
…And Part of the Problem

To paraphrase Theodore Roosevelt, cities, states and other municipal issuers act as “stewards of the public welfare.” Municipal issuers can provide a wide range of services to citizens that collectively form the backbone of modern civilization. Unfortunately, these services are not always delivered equitably to all segments of a population, and in some cases—too many cases—minority and low-income populations bear the brunt of negative side effects when a municipality fails to meet its responsibilities.

The water crisis in Flint, Michigan is a clear example of this sort of failure. The crisis began in 2014 when, in order to address fiscal problems, Flint switched the city’s water supply from Lake Huron (treated in Detroit) to the Flint River (treated at the Flint Water Treatment Plant). In the process, state officials did not implement necessary steps to control corrosion, which led to toxic lead levels in the water supply.

This came to a head recently when the State of Michigan reached a $600 million settlement to compensate Flint residents. The bulk of the payments are going to those who were minors at the time, a particularly vulnerable group that is more likely to experience neurological disorders later on. This public-health disaster fits an all-too-common pattern across the U.S. in that it primarily impacted a low-income, minority population (according to U.S. Census estimates as of 2017, Flint’s poverty rate was 41.2%, and 56.6% of its population was African-American).

In an effort to avoid investing in municipal issuers with the potential to produce outcomes like Flint, we engage in thorough ESG research to try to identify which issuers are more or less likely to provide services responsibly and equitably. As we noted earlier, the specific factors we look for when investigating a bond vary by municipal sector; these factors are helpful in identifying risks as well as opportunities.

Our ESG research has led us to avoid a variety of investments over time; a recent example is a bond from a large city’s municipal water utility, where we had specific concerns about a potential Flint-like outcome (lead contamination in drinking water that would likely have disproportionate impact on minority communities). We also recently passed on a bond issued by a university, during a time when it was facing increased scrutiny over its handling of several incidents on campus directed against people of color.

Our Responsibility to Engage as Investors

Lastly, we are using our voice as an investor to advocate for increased attention to racial justice issues. For example, we are currently working with an organization called CDP (formerly the Carbon Disclosure Project) on a pilot program for municipal bond issuers. CDP has traditionally focused on persuading public companies to provide climate-related risk disclosures, and they are now expanding their engagement efforts to include municipal issuers. As part of this initiative, we have participated in workshops with municipalities to discuss how they are addressing climate change. One of the topics at those workshops has been racial equity, as all participants—including city and state officials—increasingly understand that climate change is likely to have a disproportionate impact on people of color. It is encouraging to participate in these conversations; we hope they are a sign of greater overall attention to justice in matters of municipal funding and public services. 






The views expressed are those of Brown Advisory as of the date referenced and are subject to change at any time based on market or other conditions. These views are not intended to be and should not be relied upon as investment advice and are not intended to be a forecast of future events or a guarantee of future results. Past performance is not a guarantee of future performance and you may not get back the amount invested.

The information provided in this material is not intended to be and should not be considered to be a recommendation or suggestion to engage in or refrain from a particular course of action or to make or hold a particular investment or pursue a particular investment strategy, including whether or not to buy, sell, or hold any of the securities mentioned. It should not be assumed that investments in such securities have been or will be profitable. To the extent specific securities are mentioned, they have been selected by the author on an objective basis to illustrate views expressed in the commentary and do not represent all of the securities purchased, sold or recommended for advisory clients. The information contained herein has been prepared from sources believed reliable but is not guaranteed by us as to its timeliness or accuracy, and is not a complete summary or statement of all available data. This piece is intended solely for our clients and prospective clients, is for informational purposes only, and is not individually tailored for or directed to any particular client or prospective client.