While impact investing is growing in popularity, there are few fixed-income funds providing Americans access to this space.

Enter Boston-based Columbia Threadneedle Investments, a subsidiary of Ameriprise Financial, which launched the Columbia U.S. Social Bond Fund last year to fill what portfolio manager James Dearborn sees as a gap in impact-focused fixed income investments.

“We kept hearing there was a dearth of fixed-income products available for investors in this part of the market,” Dearborn says. “There are only one or two muni bond funds, but they’re hard to understand, they don’t really seem to have a core premise. Investors like muni bonds because they’re tax advantaged. We’ve found a place where we can provide healthy investment returns and focus on doing good in our communities.”

Dearborn is Columbia Threadneedle’s head of municipal bond investments, and is marking his 20^th year with the firm and his 30^th year as an investment professional in 2016.

Currently, 100 percent of the fund’s holdings are bonds, 90 percent municipal, and at any given time at least 60 percent of those holdings are municipal bonds, which qualifies any income from its municipal holdings for federal tax exemptions.

Dearborn says by using municipal bonds, he can eliminate many of the difficulties in marketing sustainable investments.

“No one has thought of muni bonds as part of a societal benefit,” Dearborn says. “They’re part of the capital formation process for local governments trying to build infrastructure. Municipal bonds are so straight forward that they made a lot of sense to us.”

The fund has a European cousin -- the Threadneedle U.K. Social Bond Fund, which invests in corporate bonds looking to foster socially responsible economic development -- that led to inquiries from American investors, Dearborn says.

“There was a need for this in the U.K., so Threadneedle worked with an NGO to identify bonds that fit their definition of socially responsible investments,” Dearborn says. “U.S. investors couldn’t buy in, though, it was U.K. only. They wanted us to build a fund here in the U.S. using munis.”

One major problem for portfolio managers is how do they decide which companies are meeting their funds' goals — what defines a socially responsible bond? In the case of "green" investing, third-party rating agencies have attempted to build frameworks for scoring securities, but Dearborn says these frameworks can be too liberal or too limiting at times.

“We believe there should be something behind the project,” Dearborn says. “For example, a lot of sewer bonds are just water and sewer bonds, but they put ‘green’ behind it because it could improve water quality or reduce waste. We don’t see that as being a real green bond. You need to find things that are actually making a difference as far as environmental benefits -- reducing carbon footprints, LEED certification, demonstrate the social or environmental value we’re creating with the bond.”

The U.S. Social Bond Fund invests in charter school programs in Los Angeles, clean energy projects world wide, water desalinization and filtration projects in California and new public housing in New York.

Dearborn singled out one such project, the Arbor House development in the Bronx. “It includes an on-site gym, a big ergonomically designed playground, hydroponic gardens on the roofs, water recovery, windows and well-lit stairwells and public areas. The residents there grow their own hydroponic vegetables that they in turn sell to high-end restaurants in New York. The project creates impact on so many levels  — environmental, social, economic — and there’s a waitlist to get into the building, so it provides a financial return because people are paying rent. Investors are starting to think about their returns as more than financial reward, they’re concerned about creating social benefit, this is the kind of project they want to hear about.”

Dearborn and his team evaluate municipal and corporate securities for their fundamental strength, with an eye towards biases that traditional ratings agencies may have towards certain issuers.

“We from the very start said we don’t need to compromise our investment standards to pursue this fund,” Dearborn says. “Eighty percent of the investments in this fund are held in at least one of our other bond funds, and the other 20 percent meet our standards but would be redundant in those other funds. The landscape is broad and deep enough to work from an investment and social standpoint for positive outcomes. We will evaluate a bond form an investment standpoint first -- only after it meets our investment criteria do we consider whether it makes sense from a social standpoint. We won’t turn that process around and say it’s a great social story but a poor investment, that defeats our purpose.”

After securities pass muster on their fundamentals, Sustainalytics, a Dutch sustainability research firm, helps Columbia Threadneedle Investments navigate the $6 trillion of municipal bond issuances to find the ones that will maximize social impact.

Sustainalytics considers all three ESG criteria -- environmental, social, and governance -- when rating the fund’s potential investments.

In particular, the U.S. Social Bond Fund focuses on low-income communities and the institutions within them, Dearborn says.

“At times, the ratings systems are systematically biased against the bonds sold by lower-income communities,” Dearborn says. “When you look at the default rate, we don’t find there is a higher correlation to default in lower-income communities. We’ll take advantage of that bias and, where appropriate, add those securities to our fund.”

At 19 percent of its holdings, issuances from hospitals make up the largest portion of the fund, followed by local general obligation bonds at 16 percent, single-family developments at 10 percent, and corporate bonds at 9 percent. The fund is also invested in multi-family housing, water, sewer, transportation and education projects.

“In many ways, municipals are more attractive than corporate bonds for ESG because they’re not attached to a profit-making entity,” Dearborn says. “With munis, you can read the stories of what our issuers are doing in their local communities. It’s very satisfying for our investors.”

Investors will be able to monitor the progress of the fund’s projects via annual reports.

Joining Dearborn as fund managers are Chad Farrington, head of municipal bond credit research, who has 17 years of investment management experience under his belt, and Tom Murphy, head of global investment-grade credit, who has also spent 30 years working in investments.

So far, the Columbia U.S. Social Bond Fund has attracted just $20 million in assets, but interest in sustainable and socially responsible investments is growing, says Dearborn.

Despite the intensive process to vet and select holdings, the fund carries net expense ratios of .95 percent for A-class shares, and 1.7 percent for C-class shares.

“Advisors who know their clients will know because their clients are coming to them asking for more socially responsible investments,” Dearborn says. “We’re receiving interest because clients are increasingly telling us that they want to protect and build wealth while simultaneously making a difference, and they want proof of that difference.”