The financial consequences of climate change and extreme weather events are intensifying for US cities and states. According to Morgan Stanley, sustainability bonds are a good choice for addressing this challenge.

“Through bond offerings, increasingly labelled as sustainability bonds, states and cities are able to dedicate the necessary capital to respond to the evolving environmental and social needs of their communities,” writes Zachary Solomon, Co-Head of Morgan Stanley’s Public Finance Group. 

Additionally, the investment bank points out how the appetite for sustainability bonds has surged in recent years, driven by both issuers and investors. According to it, investors see sustainable bonds as a way to protect their portfolios from climate-related risks, promote energy conservation, and tap into opportunities arising from sustainability challenges.

Morgan Stanley also points out that sustainable bonds are being used to build new infrastructure to help adapt to flooding and storm surges. “In 2012, Hurricane Sandy ravaged the East Coast. At the southern tip of New York City, the aftermath included lost lives, displaced residents, and flooding in homes and public spaces,” informed Morgan Stanley. 

“To ensure that future weather events have less of an impact…in June 2023, the Battery Park City Authority (BPCA) issued $349 mn of municipal bonds designated as sustainability bonds…to raise funds that will help fortify the area along the Hudson River against storm surges,” it added. 

The investment bank also mentioned that New York State is leveraging sustainable bonds to construct energy-efficient affordable housing units in line with stringent environmental requirements. 

It asserts that these housing units will bring about substantial social advantages by providing affordable accommodations for low-income individuals. Furthermore, Morgan Stanley mentions that these units will be equipped with amenities such as community spaces, fitness centres, laundry facilities, sports courts, and transportation services to train stations.

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