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

Rhea-AI Summary

AllianceBernstein highlights the importance of municipal bond issuers in addressing water scarcity and improving access to quality healthcare. Impact investing in the $4 trillion US municipal bond market can tackle challenges like clean water supply and healthcare accessibility. Case studies of El Paso Water and Temple University Health showcase successful initiatives in water conservation and community health improvement.

Insights

Financial Analyst

Examining the municipal bond market through the lens of impact investing reveals an intersection of fiscal responsibility and social equity. The strategic allocation of capital towards projects like water conservation and healthcare access directly influences the financial health of municipalities and the well-being of their residents. Municipal bond issuers, by focusing on sustainable and inclusive infrastructure, not only address immediate environmental and social challenges but also potentially reduce long-term liabilities, which can lead to more stable and attractive investment opportunities.

El Paso Water's implementation of water conservation strategies has resulted in a significant decrease in per capita water consumption, a move that can be interpreted as both fiscally prudent and socially responsible. By lowering the demand for peak water usage, the issuer can defer or eliminate the need for costly infrastructure expansions, thereby preserving capital and keeping rates manageable for consumers. This approach aligns with a growing investor demand for bonds that deliver measurable social impact alongside financial returns.

Temple University Health's initiatives to address social determinants of health may lead to improved long-term health outcomes, which could reduce the burden on healthcare systems and thus, the financial strain on the hospital. By investing in community health and preventive care, Temple Health is likely to experience lower uncompensated care costs and better financial stability. This proactive approach to healthcare can be an attractive point for investors seeking investments with a positive community impact that also mitigate financial risk.

Market Research Analyst

The case studies presented highlight a growing trend in the municipal bond market towards investments with tangible social benefits. This shift is indicative of broader market preferences, where investors are increasingly considering the environmental, social and governance (ESG) implications of their portfolios. Investments in projects that address water scarcity, healthcare access and other social determinants of health resonate with the principles of ESG investing, which can lead to a diversification of investor bases and potentially lower borrowing costs for municipalities.

Moreover, the emphasis on data-driven strategies and key performance indicators for project evaluation suggests a maturation in the impact investing sector. These practices enhance transparency and accountability, which are critical for attracting and retaining socially conscious investors. As more investors seek to align their portfolios with their values, municipalities that demonstrate clear and measurable impacts on their communities might find it easier to access capital and at more favorable terms.

Economist

Investing in social infrastructure, such as water conservation and healthcare, can have a multiplier effect on local economies. By improving the quality of life and reducing the cost burden on low-income communities, such investments can stimulate economic activity and enhance productivity. For instance, El Paso Water's conservation efforts not only save on immediate costs but also contribute to a more sustainable water supply, which is essential for long-term economic growth in drought-prone regions.

Similarly, Temple University Health's focus on social determinants of health could lead to a healthier workforce and reduced absenteeism, which are beneficial for economic productivity. The long-term economic benefits of such investments are often underestimated but can lead to increased property values, higher tax revenues and overall economic resilience. These factors underscore the importance of municipal bond issuers in driving local economic development and the potential for impact investing to support this process.

NORTHAMPTON, MA / ACCESSWIRE / March 5, 2024 / AllianceBernstein:

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

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.

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

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.

1. https://www.nature.com/articles/s44221-022-00009-w
2. https://www.uclahealth.org/sustainability/our-commitment/social-determinants-health
3. https://cph.temple.edu/about/news-events/news/temple-commits-1-million-immigrant-and-vulnerable-populations-healthcare
4. https://www.templehealth.org/sites/default/files/2022-06/FY22-CHNA-Temple-University-Hospital.pdf
5. https://www.templehealth.org/about/news/program-aimed-at-providing-housing-support-services-for-people-experiencing-homelessness-sees-75-decrease-in-emergency-department-visits-and-79-decrease-in-admissions

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.

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SOURCE: AllianceBernstein

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FAQ

How can impact investing in municipal bonds address challenges like water scarcity and healthcare access? (AB)

Impact investing in municipal bonds can fund projects that diversify water sources, implement water conservation strategies, and improve healthcare access for communities.

What strategies did El Paso Water implement to improve water conservation? (AB)

El Paso Water implemented strategies like reducing water waste through leak detection, maintaining a conservation-focused rate structure, and emphasizing education for efficient water use.

How does Temple University Health contribute to community health improvement? (AB)

Temple University Health focuses on preventive care, chronic disease management, patient-centered medical homes, and community health worker programs to improve health outcomes in underserved populations.

What impact did Temple Health's Multi-Visit Patient Clinic have on patient care? (AB)

The Multi-Visit Patient Clinic at Temple Health reduced emergency department use by 40%, inpatient use by 21%, and increased outpatient services use by 50%, showing effective care management for high-risk patients.

How can investors support municipal issuers in creating positive impacts in communities? (AB)

Investors can play a crucial role by supporting municipal issuers that focus on creating positive impacts in communities through thoughtful capital allocation, contributing to a more equitable and sustainable future.