New Time-Dependent Risk-Return Tradeoffs from CBI Certified Municipal Bonds

The Journal of Investing, ESG Special Issue 2020, 29 (2) 46-57

Posted: 5 Mar 2020

See all articles by Carolin D. Schellhorn

Carolin D. Schellhorn

Saint Joseph's University - Department of Finance

Date Written: January 28, 2020

Abstract

Forced to address human-induced climate change, the world has embarked on the transition to a low-carbon economy, requiring massive amounts of financing. Municipalities in the US have begun to issue bonds that are third-party certified and registered with the Climate Bonds Initiative (CBI) to attract funding for much-needed climate-related infrastructure. As this market is developing, borrowers and lenders are assessing the potential for new risk-return tradeoffs over time. Variations in the pricing of CBI certified municipal bonds with different terms to maturity likely depend on the extent to which climate-related projects are expected to be prioritized in fund allocations to correspond to increases in public attention to the dynamics of climate change. As the pricing of time-dependent climate-related risks progresses, the market for CBI certified bonds promises to become an efficient funding mechanism for communities grappling with climate risks while expanding the menu of risk-return choices for investors.

Keywords: ESG investing, risk management, fixed income portfolio management

JEL Classification: G11, G12, H74

Suggested Citation

Schellhorn, Carolin D., New Time-Dependent Risk-Return Tradeoffs from CBI Certified Municipal Bonds (January 28, 2020). The Journal of Investing, ESG Special Issue 2020, 29 (2) 46-57, Available at SSRN: https://ssrn.com/abstract=3526994

Carolin D. Schellhorn (Contact Author)

Saint Joseph's University - Department of Finance ( email )

Philadelphia, PA 19131
United States
610-660-1657 (Phone)
610-660-1986 (Fax)

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