• Increased awareness of climate change risks: Investors are increasingly recognizing the potential risks that climate change poses to their investments, and are seeking out investments that address these risks.
• Strong demand for green bonds: Green bonds, which are specifically issued to finance projects that address climate change, have seen strong demand from investors in recent years. This demand has helped to drive down yields on green bonds, making them more attractive to investors.
• Regulatory pressure: Governments around the world are increasingly implementing policies and regulations that encourage investment in climate-friendly projects. This regulatory pressure is also helping to drive demand for municipal bonds that address climate change.
As a result of these factors, municipal bond yields for bonds that address climate change have generally been lower than yields on traditional municipal bonds. This indicates that investors are willing to pay a premium for debt that supports projects that address climate change.
Here are some specific examples of how municipal bond yields have been affected by climate change:
• In 2019, the city of San Francisco issued $650 million in green bonds to finance a variety of climate-friendly projects, including renewable energy, energy efficiency, and sustainable transportation. The bonds had an average yield of 3.1%, which was significantly lower than the yield on the city’s traditional bonds.
• In 2020, the state of California issued $5 billion in green bonds to finance water conservation and climate resilience projects. The bonds had an average yield of 2.9%, which was again lower than the yield on the state’s traditional bonds.
These examples illustrate how municipal bond yields can be affected by climate change. As investors increasingly seek out investments that address climate change, yields on these bonds are likely to continue to decline.
