Some of Wall Street’s biggest buyers of America’s state and local government bonds are starting to ask questions about racial equity.
Five investment giants -- BlackRock Inc., Goldman Sachs Asset Management, Lord, Abbett & Co., Morgan Stanley Investment Management and Vanguard Group Inc. -- are working with two minority-owned underwriters, Loop Capital Markets and Siebert Williams Shank & Co., to develop and distribute a questionnaire that governments will be asked to fill out before new bond deals are arranged. It will ask about policing policies, efforts to combat race-based inequality, social services and the demographic breakdown of the government’s workforce, among other things.
“The pandemic has brought up the broad range of inequity in our society and it’s important to understand how everyone is working on that,” said Daniel Solender, head of municipal bonds at Lord, Abbett, which manages about $36 billion of the securities.
“We want to engage: we can ask questions, we can compare different issuers for what they’re doing,” Solender said. “It’s important for us to know what we’re investing in.”
The push reflects the growing influence of the socially responsible investment business, with Wall Street funds eager to cater to investors seeking to use their funds to combat global warming or promote societal change.
The industry has been making inroads into the $4 trillion municipal securities market, a slow moving haven of buy-and-hold investors seeking tax-free income.
But the market has broad reach that’s drawn attention from activists, since it finances everything from hospitals and water systems to sports stadiums and legal settlements for victims of police brutality. And governments themselves have started courting the do-good investors: they sold a record $10 billion of so-called social debt so far this year, and they frequently put green-bond labels on debt issues that finance public transportation, energy efficient buildings and other projects with environmental benefits.
The questionnaire project, called the Municipal Issuer Racial Equity & Inclusion Engagement Framework, marks a step to provide more information to investors interested in how cities are working to address the nation’s legacy of racial inequality. It was organized in part by the non-profit JUST Capital.
The protests that gripped the U.S. in the summer of 2020 underscored the need for investors to know what cities are doing to promote racial equity, said Alexa Gordon, head of municipal ESG at Goldman Sachs Asset Management. She said that eventually the responses may help investors decide what to buy.