U.S. institutions of all stripes continue to highlight and address the nation’s racial and economic inequities. Against this backdrop, there is an unprecedented opportunity for investors to help build an equitable nation that serves all stakeholders. As part of JUST Capital’s mission to build a more just and inclusive economy, we’ve worked closely with a group of influential asset managers to foster discussion around racial and economic disparities, leading to the development of the Municipal Issuer Racial Equity & Inclusion Engagement Framework.
Much of JUST Capital’s work centers on disclosure, measurement, and engagement with publicly traded U.S. companies – all based on our polling of the public to determine how Americans think corporate America should be serving all its stakeholders. The municipal bond market stands in stark contrast to public equities and corporate bonds, since municipal bonds are not subject to the same regulation and disclosure requirements. While disclosure on ESG issues is more limited, clients and asset managers are increasingly examining the environmental, social, and governance (ESG) factors associated with the municipal bond market. By taking ESG issues into account, clients and asset managers may detect risks and value that might not be identified through traditional municipal credit analysis.
Municipal bonds (or “munis” for short) are debt securities issued by states, cities, counties, and other governmental entities to fund day-to-day obligations and to finance capital projects such as building schools, highways, or sewer systems (U.S. Securities and Exchange Commission.) These debt securities are generally high-quality and low-volatility, and provide investors with tax-advantaged income. The Municipal Issuer Racial Equity & Inclusion Engagement working group, which includes Goldman Sachs Asset Management, BlackRock, Lord Abbett, Morgan Stanley Investment Management, and Vanguard, recognized the need to improve transparency and disclosure in the muni space. This founding group came together to develop the initiative to open a constructive and voluntary dialogue with municipal issuers on critical social issues, including a questionnaire to improve disclosure and transparency on topics related to racial equity and inclusion.
The key output of the asset manager working group is a questionnaire that supports increased engagement and disclosure that can help stakeholders make more informed investment decisions. And while engagement is entirely voluntary for municipalities, the group has partnered with municipal underwriters Loop Capital and Siebert Williams Shank & Co., LLC to propose the Framework to issuers when they are bringing new issuances to market. They also plan on coordinating with well-established municipal market disclosure platforms to ensure that this information is accessible to the entire municipal market over time; both for asset managers as well as asset owners.
There is no one-size-fits-all approach for a municipality engaging on these topics, but imagine the collective impact the working group can make toward upgrading capitalism and building an inclusive economy if all players in the municipal bond space commit to making equity and inclusion a strategic priority. In the words of the SEC, the muni market is “remarkably diverse and issuers vary tremendously in size, purpose, and capital needs.” The agency notes that there are “approximately 50,000 issuers of municipal securities, including states, their political subdivisions (such as cities, towns, counties, and school districts), their agencies and instrumentalities (such as housing, health care, airport, port, and economic development authorities and agencies), as well as a variety of private entities that access the market through “conduit” financings (such as hospitals, senior living and continuing care retirement communities, and museums).” To further describe the size and scale of the muni market, the agency notes that “there are approximately one million different municipal securities outstanding compared to approximately 30,000 corporate bonds outstanding.” (U.S. Securities and Exchange Commission)
In recent survey research with The Harris Poll, JUST Capital learned that 95% of Black Americans believe it’s important for companies to promote racial equity – defined by JUST Capital’s program partner PolicyLink as “just and fair inclusion into a society in which all people can participate, prosper, and reach their full potential” – and 80% believe they can do more. The Municipal Issuer Racial Equity & Inclusion Engagement Framework and associated disclosure questionnaire are meant not only to fill a gap in existing data around municipal issuer performance on social issues, but also incentivize increased disclosure and encourage issuers to take meaningful steps in advancing racial equity and inclusion across stakeholders.
Over the last two years, JUST has been ramping up collaborations with investors to push for increased disclosures – including work with NYC retirement systems on EEO-1 disclosures and with Illinois and Connecticut State Treasureres on board diversity data disclosures – as well as drive investments toward companies leading the way. Together with our partners, PolicyLink and FSG, JUST Capital has developed key principles and strategic guidance for corporate leaders looking to move from incremental commitments to transformation within the company, within society, and within their communities.
As part of its broader mission, JUST is engaged in a multi-year initiative to track and advance racial equity in America by providing market participants with the tools and resources they need to incentivize action and build a more just and inclusive economy. We have established the Corporate Racial Equity Alliance along with partners PolicyLink and FSG, regularly survey the public to elevate their voice and priorities, develop racial equity reporting standards and recommendations for corporate leaders, track corporate actions and best practices, produce research and analysis to reveal the business and investor case for continued action, and collaborate with investors to incentivize investments in companies leading the way.
Without consistent alignment and cohesive strategies, these social issues, particularly those related to racial equity and inclusion, are in danger of being deprioritized, removed from strategic plans and deprioritized due to discomfort or lack of knowledge.
From JUST Capital’s perspective, the engagement framework provides the opportunity to promote the efforts many municipalities are already making with regard to racial and social justice, and to highlight the importance of transparency among local governments as an accountability tool in making progress toward equity. The process enables the issuer community to highlight programs that have long been in place in response to increased investor questions and encourages others to learn from best practices.
Where can investors find information about municipal bonds?
The Municipal Securities Rulemaking Board’s Electronic Municipal Market Access (EMMA®) website provides free public access to municipal securities documents and data.