Municipal fixed-income markets can be an ideal space for identifying securities that can create real impact in local communities and beyond. At its core, the asset class is designed for public good. It’s also rife with inefficiency, which creates opportunity for savvy investors.
Wells Fargo Asset Management (WFAM) has developed a new framework to identify an investable universe of securities associated with positive environmental or social impacts.
The framework looks for positive impact at both the bond and issuer level, with bonds qualifying if they satisfy one or more of the four criteria that make up WFAM environmental, social, and governance (ESG)’s Impact Framework for municipal bonds:
- The bond’s proceeds are to be used toward an activity or project that offers tangible environmental or social benefits.
- The issuer of securities, through their services or operations, increases or provides new benefits to the environment or society.
- The issuer or bond proceeds serve an underserved population group.
- The issuer or security attains a positive third-party ESG rating.
Within this framework, various types of activities are positively viewed, such as:
- Access to essential services
- Affordable basic infrastructure
- Sustainable water and wastewater management
- Energy efficiency
- Affordable housing
- Climate change adaptation
- Clean transportation
- Renewable energy
- Environmentally sustainable management
Learn more about how the Wells Fargo Municipal Sustainability Fund gives investors the opportunity to make a difference in communities around the U.S. while pursuing their desired investment outcomes.
The Wells Fargo Asset Management approach to ESG & Sustainable Investing
- We’ve developed in-house methodologies to assess material ESG information for enhanced investment risk management.
- We’re bringing together analysts from across the firm to review the investment implications of climate change—sector by sector—and we’re designing ways to decarbonize portfolios.
- We’re creating innovative frameworks that can help drive capital toward positive ESG outcomes with real impact.
Bond values fluctuate in response to the financial condition of individual issuers, general market and economic conditions, and changes in interest rates. Changes in market conditions and government policies may lead to periods of heightened volatility in the bond market and reduced liquidity for certain bonds held by the fund. In general, when interest rates rise, bond values fall and investors may lose principal value. Interest rate changes and their impact on the fund and its share price can be sudden and unpredictable. High-yield securities have a greater risk of default and tend to be more volatile than higher-rated debt securities. The use of derivatives may reduce returns and/or increase volatility. Investing in environmental, social, and governance (ESG) carries the risk that, under certain market conditions, the investments may underperform products that invest in a broader array of investments. In addition, some ESG investments may be dependent on government tax incentives and subsidies and on political support for certain environmental technologies and companies. The ESG sector also may have challenges such as a limited number of issuers and liquidity in the market, including a robust secondary market. Investing primarily in responsible investments carries the risk that, under certain market conditions, an investment may underperform funds that do not use a responsible investment strategy. This fund is exposed to municipal securities risk. Consult the fund’s prospectus for additional information on these and other risks.
Carefully consider a fund’s investment objectives, risks, charges, and expenses before investing. For a current prospectus and, if available, a summary prospectus, containing this and other information, visit wfam.com. Read it carefully before investing.