TY - JOUR T1 - New Time-Dependent Risk-Return Tradeoffs from CBI Certified Municipal Bonds JF - The Journal of Investing DO - 10.3905/joi.2019.1.111 SP - joi.2019.1.111 AU - Carolin Schellhorn Y1 - 2019/11/21 UR - https://pm-research.com/content/early/2019/11/21/joi.2019.1.111.abstract N2 - 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.TOPICS: ESG investing, risk management, fixed income portfolio managementKey Findings• The yields of municipal bonds that are certified to address the risks associated with climate change appear to decline relative to the yields of comparable conventional bonds with lengthening maturities.• The dynamic nature of the climate risks and the public’s growing willingness to prioritize climate-related projects are likely factors in the bonds’ time-dependent pricing.• This emerging market segment may develop into a valuable funding mechanism for climate-conscious municipalities while expanding the menu of risk-return opportunities for investors. ER -