Is it possible for Capital Investors to invest in Local Authorities?
The Municipal Bonds Agency is working on a plan that allows local authorities to issue ESG bonds. They are working on a framework which will allow capital market investors to lend to local government for projects that meet ESG criteria. This was recently reported at the Local Authority Treasurers Investment Forum (Latif) and may offer an alternative for cheaper local authority borrowing. For the full report see https://www.room151.co.uk/treasury/mba-develops-esg-bond-framework/
A draft ESG framework is currently being considered which if approved, will lead the way for the development of a procedure for standalone or pooled bond to be moved forward. Local authorities that have clear political and public commitments for projects that meet ESG criteria could greatly benefit from this. (Extract Source: Room 151editor blog 28th January 2021 see the link above.)
Currently councils borrow from the Public Works Loan Board (PWLB).This is operated by the UK Debt Management Office (DMO). However, the DMO held a consultation in 2020 with regards to tackling perceived abuse of borrowsing powers by some authorities. The consultation ended in July 2020 with the results being published immediate and a drop I rate. (Source :Bevan Brittan-law firm)
Local authorities are looking at many alternative ways of working e.g., setting themselves up as private companies, to work alongside developers for housing projects and therefore, funding may be high on the agenda for those and other infrastructure projects. A Room151/CCLA survey revealed that of those inclined to look beyond PWLB almost 35% of treasurers consider the MBA an attractive source of borrowing while private placement bonds scored support of more than 20%. (Source:Room 151editor blog 28th January 2021) https://www.room151.co.uk/treasury/mba-develops-esg-bond-framework/
Debt management will become crucial as authorities become more entrepreneurial and they will be looking at other diverse ways of borrowing to aide with this. For ethical investors ESG bonds may well be the way forward for investing with authorities however, it maybe that education is needed on both sides before investors buy in.
(Photograph by Michiele Henderson)