Mayor Walsh commits additional $50 million to ESG investment initiative, calls on cities across the country to join in effort
Building on a continued effort to promote sustainable and responsible investment, Mayor Martin J. Walsh today announced a commitment of an additional $50 million towards the City of Boston's Environmental, Social and Governance (ESG) Investment Initiative. This commitment brings the City's total investment in the ESG Initiative to $200 million, which will be invested in the short-term fixed income securities (i.e. short-term bonds and notes) of companies that maintain strong corporate ESG practices. Mayor Walsh launched the ESG Investment Initiative last year with an initial commitment of $150 million to encourage sustainable investment policies in Boston.
The City also provided an update on last week's bond sale, in which Boston issued its first ever series of Green Bonds, which will fund energy efficiency projects, and Social Bonds, which will fund affordable housing projects. Based on the results of the sale, in which the City successfully issued green bonds with lower interest costs than their non-green counterparts, Boston believes it has shown the largest and most definitive pricing benefit to date for bonds carrying the green label. The City believes this is an important first step in demonstrating that there is more than a marketing advantage in selling green bonds.
"Our goal at the outset of the Environmental, Social and Governance initiative was to find a way to use City assets to promote sustainable and responsible investment," said Mayor Walsh. "We have done that in a way that not only allows Boston to achieve its investment objectives, but also in a way that incentivizes good corporate behavior. We encourage other cities to join us in this effort, and we want to be a resource to you in this work."
"From the start, Mayor Walsh has asked us to find creative ways to make smart, responsible investments that not only meet our stated objectives, but that make a difference," said Drew Smith, Head of Treasury for the City of Boston. "We have created a methodology for ESG investing that can be replicated by other cities and governmental investors. If this is adopted broadly, we believe that governments can earn a return while driving down the borrowing costs of companies that conduct their business in a way that respects their workers, their communities, and our planet."
Since announcing the initial ESG investment in 2019, the City of Boston has selected an investment manager, developed a workable methodology for ESG investment, and analyzed investment results. Using the ESG scoring services of third party research firm Sustainalytics and working with investment manager PFM Asset Management LLC, the City has managed the investment and reinvestment of the initial $150 million, while analyzing results and refining the methodology. Initial results indicate that this and similar approaches, which focus on excluding investment in firms with poor ESG metrics in favor of firms with strong ESG metrics, can produce competitive returns while further reducing risk exposure. These results are consistent with the primary investment objectives of safety, liquidity, and yield objectives generally associated with the most conservative level of investment.
Governmental investors are frequently constrained by restrictive investment policies that only allow investment in short-term, high quality investments, particularly in the case of operating funds. These restrictions have made sustainable investing with these funds difficult without a standard framework that allows the investment to be turned and reinvested continuously.
Last week, the City went to market on the sale of its 2020 series bonds with Bank of America Securities leading the transaction and Siebert Williams Shank & Co., a minority business enterprise, as transaction co-lead. This was the first time in over 10 years the City has entered the market using a negotiated method of sale, allowing it to sell bonds directly to individual investors as well as institutional investors. The sale included the issuance of $35 million for Social Bonds, which will support the financing of certain affordable housing projects, in partnership with the Boston Housing Authority throughout the city, and nearly $24 million for Green Bonds, which will support energy-efficient and environmentally friendly projects in Boston.
Earlier this month, Mayor Walsh announced that Boston has maintained triple-A bond ratings for the seventh consecutive year, as assigned by Moody's Investor Service and S&P Global Ratings. The agencies' affirmations of Boston's strong financial health is a recognition of the City's fiscal management during the COVID-19 pandemic. Since 2014, the City has continued to receive the top credit rating from both rating agencies.
Mayor Walsh was also recently named Chair of the Climate Mayors coalition. In this role, Mayor Walsh will help catalyze efforts to combat climate change at the local level, provide an example of climate action for leaders at all levels of government, and advocate for an economic recovery founded in equity and environmental stewardship.