Our economy is funded in part by long-term credit, which in part depends on the long-term stability of natural resources, such as water and energy that are critical to any business plan. Municipal bonds are a classic long-term investment vehicle: unlike stocks, most investors hold them for long durations and assume they will be safe investments over the life of the bond. The bonds themselves are issued to fund major infrastructure projects, such as water storage, sewage treatment and electric power production, which support economic activity. Any hidden risks in municipal bonds are a threat both to their direct investors, but also the broader U.S. economy...
[A] report shows that [many] utilities face moderate to severe water shortfalls in the coming years due to growing water scarcity, legal conflicts and other supply risks. Yet, these water risks do not appear to be reflected in the bonds and bond ratings that public utilities rely on to finance their infrastructure projects...
More broadly, hidden risk is not just confined to the municipal bond market, and sustainability risks are not limited to water availability. Deutsche and Ceres both want to emphasize the growing importance of assessing these and other long-term sustainability trends and risks across all investment platforms – whether they are stocks or fixed income assets.
Our global economy is changing and it will require its participants to be more open and rigorous about understanding the connections between long-term economic prosperity and pressing sustainability threats such as climate change, population growth and resource scarcity.
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