Impact Investing: Addressing Local Needs with Precision and Purpose

Jan 01, 2022
4 min read
Close-up of a CNC machine cutting several shapes simultaneously in a metal slab. The sparks fly.
Larry Bellinger, CFA| Director—Municipal Credit Research
Erin Bigley, CFA| Chief Responsibility Officer
Matthew Norton| Chief Investment Officer—Municipal Bonds
Marc Uy| Portfolio Manager—Municipal Impact

Impact investing, which seeks to make a direct—and measurable—social or environmental impact while generating a financial return, has historically been synonymous with the private debt and equity markets. But that ignores the hugely important public market of municipal finance.

Impact investing and municipal bond investing are a natural fit. Municipalities are uniquely positioned and responsible for building and supporting the physical infrastructure and public goods that better enable all citizens to participate in an inclusive economy. In turn, investors can put muscle behind the political and civic will to make a difference.

The opportunities to fund positive change are deep and broad within state and local governments. But muni impact doesn’t need to cast a wide net to make a big difference. In fact, it does its best work in smaller spaces at a grassroots level.

Take America’s aging public schools. In thousands of school systems nationwide, facilities are, on average, 70 to 100 years old. These aren’t historical landmarks. They’re just old buildings suffering from a half century or more of underfunded maintenance and deferred repairs. These inadequate and sometimes dangerous facilities are concentrated in communities of low socioeconomic status, where they have both direct and indirect effects on student achievement. Impact investors can help correct this inequity by injecting modern facilities and resources directly into school systems. Evidence points to significant long-term benefits to student outcomes from improving infrastructure through capital infusion.

The Dallas Independent School District (ISD) is doing exactly this by issuing a bond to fund its efforts toward educational equity. Families in underserved communities in this district lack sufficient access to mental and physical healthcare, after-school programs, job training, healthy food and safer infrastructure. To help close this gap, Dallas ISD plans to locate four student and family resource centers in neighborhoods that have been disproportionately affected by a history of disinvestment, marginalization, segregation, redlining and other inequities. The planning team is currently deliberating the physical layout of the facilities, which are now mandated by the voter-approved bond.

Health is another area where municipal finance can bridge gaps. In Boston, for example, the wealthy Back Bay community has an average life expectancy of 90 years. Yet, just two miles away in the predominantly poor neighborhood of Roxbury, the average life expectancy is just 60 years—a 30-year “death gap.”

Much of this gap can be attributed to a grim cycle of socioeconomic instability. From 2016 through 2019, Boston Medical Center enrolled 78 Boston families experiencing housing instability and defined as “medically complex” in a study to determine if the coordination of services addressing housing, financial, legal, social and health needs would lead to improved physical and mental health. The conclusion was clear. In the first six months of the study, not only did parental mental health improve, but also the share of children with fair or poor health fell by 32 percentage points.

Boston Medical Center—a safety-net hospital for which 70% of patients are from underserved areas, including Roxbury—understands the need to address the cycle of instability to improve community health. The hospital is taking measurable steps to reduce the disparity between wealthy and poor communities through population health management that extends beyond simply providing medical care. By supporting institutions such as Boston Medical Center, municipal impact investors can help achieve health equity in historically underresourced communities.

Access to clean water is also a risk for many communities throughout the United States. Dated and potentially toxic lead service lines are still used in far too many systems, the vast majority being low-income communities of color. As the lines corrode, lead leaches directly into each home’s tap. Children are at a particularly high risk of cognitive delays, as no amount of lead exposure is safe. Municipal impact investing can directly address this environmental justice issue.

In Newark, New Jersey, residents were endangered by these very conditions beginning in 2015, when a corrosion control system began to fail. To effectively and efficiently address the situation, the Essex County Improvement Authority issued municipal bonds to mandate the replacement of 18,000 lead residential service lines throughout the city. So far, nearly 21,000 lines have been swapped out, marking a clear beginning of the end to lead-contaminated drinking water for the city.

These are some of many examples of how municipal impact investing can measurably improve quality of life for historically marginalized and excluded communities.

Global economies will need to galvanize more than US$100 trillion to address climate and social justice challenges in the years ahead. A spectrum of responsible investing strategies—including ESG integration and sustainable investing—will be foundational to helping in these areas. But for municipal bond investors, impact investing may deliver the biggest bang—and one a lot closer to home.

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 and are subject to change over time.


About the Authors

Larry Bellinger is a Senior Vice President and Director for the Municipal Credit Research Group, providing high-yield research on municipal credits, with a focus on senior living and hospitals. He initially joined AB in 2012 as a municipal credit research analyst, focusing on municipal credits in Northeastern states, as well as Florida, Ohio and Wisconsin. Bellinger returned to the firm in 2019. In between, he spent three years as a research analyst with Schroders, covering all regions and all municipal sectors for investment-grade and high-yield credits. Earlier in his career, Bellinger worked at Moody's Investors Service, where he primarily analyzed municipal credits in the Northeast. Prior to that, he was an analyst at insurance-rating agency AM Best Company and a D&O underwriter for financial institutions at insurance company Chubb. Bellinger holds a BS in business administration (international business) from Central Washington University, an MBA from Michigan State University and a JD from Rutgers Law School. He is a CFA charterholder. Location: New York

Erin Bigley is a Senior Vice President, AB’s Chief Responsibility Officer, and a member of the firm’s Operating Committee and Women’s Leadership Council. In this role, she oversees AB’s responsible investing strategy, including integrating material environmental, social and governance considerations throughout the firm’s research, engagement and investment processes. Bigley joined the firm in 1997 and previously served as a portfolio manager and trader for the global and Canadian bond strategies. She spent two years based in London as the global head of Fixed Income Business Development for institutional clients. Bigley served as a fixed-income senior investment strategist for over a decade, and as head of the strategist team from 2018 to 2021. Prior to taking her current role, she served as head of Fixed Income Responsible Investing, overseeing the Fixed Income team’s responsible investing strategy. Bigley holds a BS in civil engineering from Villanova University and an MBA from the Massachusetts Institute of Technology’s Sloan School of Management. She is a CFA charterholder. Location: New York

Matthew Norton is Chief Investment Officer for Municipal Bonds, responsible for overseeing municipal bond investing at AB. He is also a member of the Municipal Impact Investment Policy Group. Previously, Norton was a portfolio manager on the Municipal Bond team. He joined AB in 2005, focusing primarily on research in tax-exempt and taxable fixed-income markets. Prior to joining the firm, Norton worked as a statistical research analyst at St. Lawrence University, evaluating the accuracy of biometric devices. He holds a BS in economics and mathematics from St. Lawrence University and an MBA in economics and quantitative finance from the Leonard N. Stern School of Business at New York University. Location: New York

Marc Uy is a Vice President and Portfolio Manager for AB’s Municipal Impact products. He joined the firm in 2004 as a member of the Trading and Technical Team. In 2011, Uy was promoted to associate portfolio manager and implemented investment strategies and monitored risk exposures across AB’s municipal platform. In 2018, he advanced to his current role, where he oversees ESG portfolio strategy and research. Uy holds a BS in business management from Babson College. Location: New York