Sustainable Munis: A Spotlight on Education
February 15, 2022
Read Time 6 MIN
Summary
HIP Ratings of municipal bonds take into account the potential for higher-impact education within municipalities, as well as metrics that align with ESG and SDG goals and principles.
Reading, writing, and arithmetic – all essential skills needed by students historically, today and in the future.
How can education be successfully delivered to young students in low-income areas, where 80% of students are eligible for free or reduced school lunches, speak English as a second language, and live in foster care as well? Ask Val Verde School District in California.
This Kinder Counts video from Val Verde school district provides a brief yet powerful message about the impact of schooling, directly from the diverse students and their teachers.
While “adorable kids” is not an official HIP Rating metric, the HIP team analyzes a variety of outcomes related to school safety, class performance, educational programs for access, and more.
Schools provide an environment for children to learn where and how food is grown as well as how to generate energy from a variety of means, including solar panels. Ken Kay, founder of Partnership for 21st Century Skills, and Suzie Boss, education writer and consultant, explain more about schools with solar panels and health nutrition programs:
“For example, in Val Verde Unified School District in California, Superintendent Mike McCormock describes two systemwide exposures for all students in the area of sustainability. ‘First, we have gardens at all of our schools and continue to push enough production so that vegetables grown in our school gardens are used in our school salad bars. We are in the process of building a million-dollar greenhouse at one of our high schools to really solidify this effort. Second, we also have solar at all of our schools. Each school has a display that is accessible to teachers and students that reports the number of kilowatts that the panels are producing. This allows for teachers and students to monitor energy production on a daily basis and have conversations and lessons on green energy and sustainability.’”
Source: “Redefining Student Success: Building a New Vision to Transform Leading, Teaching, and Learning” by Ken Kay and Suzie Boss (2021).
Leading schools like Val Verde School District have achieved a higher-than-state-average rate of students completing high school in four years, and a higher rate than the state average of qualified students for admission to a 4-year college or university. Val Verde is a top holding in the VanEck HIP Sustainable Muni ETF (SMI) as of February 2022.
How Does HIP Evaluate Municipal Bonds?
HIP Investor Ratings are data-driven, evidence-based, and research-linked. Specifically, HIP Ratings incorporate research that shows which variables are key to improving outcomes. Then, HIP tracks data and metrics related to evidence-based targets and goals. In education, an example is students-per-teacher or class size. While the cost of education is strongly debated, outcomes for students in smaller class sizes exceed those of larger classes. The landmark STAR study of the 1980s and subsequent updates provide evidence that class sizes of 15 to 18 are more beneficial and promote more personalized instruction. Large classes can tilt towards group lectures and less engagement among teachers and students.1 Thus, HIP rates schools with smaller class sizes higher and with larger class sizes lower.
HIP Investor’s methodology, which precedes the term “ESG” by several years, uses five pillars based on Maslow’s hierarchy of needs. These five pillars — Health, Wealth, Earth, Equality, and Trust – can be mapped to ESG as well. Earth maps directly onto “Environment,” Trust into “Governance,” and the “Social” metrics are further delineated around health, wealth and equality indicators.
These pillars and associated metrics are weighted according to their contributions to net positive impact for student outcomes.
In school districts, a HIP Rating includes these sample metrics of performance and impact:
- Health: student-to-teacher ratio; graduation rates.
- Wealth: revenue per student.
- Earth: solar capacity; building standards.
- Equality: serving populations in need (i.e. reduced lunch; special education).
- Trust: transparency throughout the district and other governance issues.
In SMI, HIP Ratings also track the UN Sustainable Development Goals (SDG) framework,2 as well as a Climate Threat Resilience score.3 To value areas that need access to education, HIP tracks the number of opportunity zones that are served by the geography covered by the school district.
The Impact Entity: Val Verde Unified School District
Located in a diverse city of over 200,000 citizens with a 58% Hispanic population in Moreno Valley in California, Val Verde Unified serves a school population that needs extra support. Val Verde’s outcomes include a stellar graduation and achievement rate while having average expenditures for administrative expenses.
Val Verde was part of the universe of eligible municipalities for the portfolio, which required excellent HIP Ratings based on absolute impact -- not just relative to peers in the sector. Aside from its net positive HIP Rating of 64.3, Val Verde Unified serves 49 opportunity zones,4 helping low-income students access to improve their futures.
Val Verde Student Characteristics
Source: HIP Investor Ratings and Metrics, based on source data from issuers and peers in HIP Universe of Education from government, non-profit, and for-profit sources; Ratings and Metrics calculated as of latest data as of 12/31/2021.
Val Verde HIP Rating
Source: HIP Investor Ratings and Metrics, based on source data from issuers and peers in HIP Universe of Education from government, non-profit, and for-profit sources; Ratings and Metrics calculated as of latest data as of 12/31/2021.
Also impressive is Val Verde Unified’s 90% rate of students graduating within 4 years (compared to 83%, the 2018 California state average). In addition, 60% of Val Verde Unified students meet California State and University of California admissions requirements (compared to the 40% California State average meeting admissions requirements for CSU and 15% for UC.) This translates to one more student out of five with an opportunity to advance via higher education.
Val Verde High School Graduation and College Admission Rates
Source: Based on source data from issuers and peers from government, non-profit, and for-profit sources; calculated as of latest data as of 12/31/2021.
All of this is accomplished with average school district expenditures for administration, which includes the relatively intensive offering of special programs.
SMI seeks out muni-bond holdings providing high impact across multiple criteria to bring income and impact to investors.
About the Author
HIP Investor’s founder and CEO R. Paul Herman co-edited and co-authored the Global Handbook of Impact Investing: Solving Global Problems Via Smarter Capital Markets Towards A More Sustainable Society (Wiley 2021).
HIP provides an Overall HIP Rating and also 5 HIP Pillars linked to impact and ESG:
- Health (physical and mental)
- Wealth (income and asset building for people)
- Earth (clean air, clean water, low emissions)
- Equality (by gender and race)
- Trust (transparency, violations)
About HIP Municipal Ratings
HIP Municipal ESG Ratings are driven by 5 million sector specific quantitative data points across 122,000 entities related to munis on actual outcomes, and linked to evidence-based targets to cover nearly 200,000 issuances on impact and ESG and applicable to more than 90% of the municipal bond universe.
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Important Disclosures:
1 Source: https://www.ceeol.com/search/article-detail?id=537960.
2 Source: https://www.undp.org/sustainable-development-goals; “The Sustainable Development Goals (SDGs), also known as the Global Goals, were adopted by the United Nations in 2015 as a universal call to action to end poverty, protect the planet, and seek to ensure that by 2030 all people enjoy peace and prosperity. The 17 SDGs are integrated—they recognize that action in one area will affect outcomes in others, and that development must balance social, economic and environmental sustainability”.
3 Source: HIP Investor Ratings and analytics, including inputs from climate risk and threat analysis of the EPA.gov, and resilience assessments related to policy reviews by Columbia University’s center for climate law.
4 Source: https://www.irs.gov/credits-deductions/businesses/opportunity-zones ; Opportunity Zones are census-tracts and designated areas that typically are lower-income or can benefit from job-creation, authorized by the Federal Government for preferential tax treatment and designated by each State’s governor. For SMI, Opportunity Zones in the county or counties related to the issuer are a criteria to signal that these communities and citizens could be beneficiaries of the associated bond.
Sustainable Investing Considerations: Sustainable investing strategies aim to consider and in some instances integrate the analysis of environmental, social and governance (ESG) factors into the investment process and portfolio. Strategies across geographies and styles approach ESG analysis and incorporate the findings in a variety of ways. Incorporating ESG factors or Sustainable Investing considerations may inhibit the portfolio manager’s ability to participate in certain investment opportunities that otherwise would be consistent with its investment objective and other principal investment strategies.
ESG investing is qualitative and subjective by nature, and there is no guarantee that the factors utilized by VanEck or any judgment exercised by VanEck will reflect the opinions of any particular investor. Information regarding responsible practices is obtained through voluntary or third-party reporting, which may not be accurate or complete, and VanEck is dependent on such information to evaluate a company’s commitment to, or implementation of, responsible practices.
Socially responsible norms differ by region. There is no assurance that the socially responsible investing strategy and techniques employed will be successful. ESG integration is the practice of incorporating material environmental, social and governance (ESG) information or insights alongside traditional measures into the investment decision process to improve long term financial outcomes of portfolios. Unless otherwise stated within the Fund’s investment objective, inclusion of this statement does not imply that the Fund has an ESG-aligned investment objective, but rather describes how ESG information is integrated into the overall investment process.
The Fund relies on the Data Provider for the identification of issuers that promote sustainable development based on their HIP Ratings; however, there can be no guarantee that the Data Provider’s methodology will align with the Fund’s investment strategy or desirable issuers can be correctly identified. Moreover, the United Nations Sustainable Development Goals (“SDGs”) 9, 11 and 12 may be modified or abandoned in the future and there can be no guarantee that the Fund will be able to continue to use HIP Ratings or find an appropriate substitute ratings system.
The Fund's strategy of investing in municipal debt securities of issuers promoting sustainable development may limit the types and number of investments available to the Fund or cause the Fund to invest in securities that underperform the market as a whole. As a result, the Fund may underperform funds that do not have a sustainable investing strategy or funds with sustainable investing strategies that do not employ HIP Ratings. In addition, the Fund relies on the Data Provider for the identification of issuers that promote sustainable development based on their HIP Ratings; however, there can be no guarantee that the Data Provider's methodology will align with the Fund's investment strategy or desirable issuers can be correctly identified. Moreover, the United Nations Sustainable Development Goals (“SDGs”) 9, 11 and 12 may be modified or abandoned in the future and there can be no guarantee that the Fund will be able to continue to use HIP Ratings or find an appropriate substitute ratings system.
An investment in the Fund may be subject to risks which include, among others, risks related sustainable impact investing strategy, municipal securities, credit, interest rate, call, data, California, New York, education bond , health care bond, housing bond, transportation bond, management, operational, authorized participant concentration, absence of prior active market, trading issues, market, fund shares trading, premium/discount and liquidity of fund Shares, non-diversified, state concentration risks all of which may adversely affect the Fund. Municipal bonds may be less liquid than taxable bonds. There is no guarantee that the Fund's income will be exempt from federal, state or local income taxes, and changes in those tax rates or in alternative minimum tax rates or in the tax treatment of municipal bonds may make them less attractive as investments and cause them to lose value. Capital gains, if any, are subject to capital gains tax. The Fund's assets may be concentrated in a particular sector and may be subject to more risk than investments in a diverse group of sectors.
ICE US Broad Municipal Index tracks the performance of US dollar denominated investment grade tax-exempt debt publicly issued by US states and territories, and their political subdivisions, in the US domestic market. Qualifying securities must have at least one day remaining term to final maturity, at least 18 months to final maturity at the time of issuance, a fixed coupon schedule and an investment grade rating (based on an average of Moody’s, S&P and Fitch). Index constituents are market capitalization weighted.
© 2006-2021 HIP Investor Inc. All Rights Reserved. The information contained herein: (1) is proprietary to HIP Investor and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither HIP Investor nor its content providers are responsible for any damages or losses arising from any unauthorized use of this information. Past performance is no guarantee of future results. All investing entails risks.
HIP Investor, Inc. (“HIP”) is a provider to Van Eck Associates Corporation (“Van Eck”) of proprietary research products and services, including ESG ratings, Sustainable Development Goal ratings, Opportunity Zone mapping, Climate-Threat and Resilience ratings, and Human Impact + Profit ratings (collectively, the “HIP Ratings”). HIP is the exclusive provider to Van Eck of HIP ratings and similar data used in connection with any sustainable municipal-bond ETF provided by Van Eck, including the VanEck HIP Sustainable Muni ETF. HIP Investor, Inc. (“HIP”) receives certain fees related to the assets under management (AUM) of the VanEck HIP Sustainable Muni ETF, which creates a conflict of interest with actual and prospective clients of HIP, and biases the objectivity of HIP when discussing, evaluating, and recommending the VanEck HIP Sustainable Muni ETF to actual or prospective clients of HIP. The determination to purchase or utilize the VanEck HIP Sustainable Muni ETF is an important decision and should not be based solely upon HIP’s recommendation, guidance, or services. HIP is an independent contractor of Van Eck Associates Corporation, however HIP does not control or supervise the services or products of Van Eck Associates Corporation, and reference to the VanEck HIP Sustainable Muni ETF does not mean that HIP has performed any level of due diligence on the services or products of Van Eck Associates Corporation. Users of HIP’s website, as well as actual and prospective clients of HIP, are urged to perform their own due diligence on, or consult with a separate registered investment adviser with respect to, the VanEck HIP Sustainable Muni ETF. There is no obligation to purchase or utilize the VanEck HIP Sustainable Muni ETF.
An investor should consider the investment objective, risks, charges and expenses of the Funds carefully before investing. To obtain a prospectus and summary prospectus, which contain this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus carefully before investing.
Related Funds
Important Disclosures:
1 Source: https://www.ceeol.com/search/article-detail?id=537960.
2 Source: https://www.undp.org/sustainable-development-goals; “The Sustainable Development Goals (SDGs), also known as the Global Goals, were adopted by the United Nations in 2015 as a universal call to action to end poverty, protect the planet, and seek to ensure that by 2030 all people enjoy peace and prosperity. The 17 SDGs are integrated—they recognize that action in one area will affect outcomes in others, and that development must balance social, economic and environmental sustainability”.
3 Source: HIP Investor Ratings and analytics, including inputs from climate risk and threat analysis of the EPA.gov, and resilience assessments related to policy reviews by Columbia University’s center for climate law.
4 Source: https://www.irs.gov/credits-deductions/businesses/opportunity-zones ; Opportunity Zones are census-tracts and designated areas that typically are lower-income or can benefit from job-creation, authorized by the Federal Government for preferential tax treatment and designated by each State’s governor. For SMI, Opportunity Zones in the county or counties related to the issuer are a criteria to signal that these communities and citizens could be beneficiaries of the associated bond.
Sustainable Investing Considerations: Sustainable investing strategies aim to consider and in some instances integrate the analysis of environmental, social and governance (ESG) factors into the investment process and portfolio. Strategies across geographies and styles approach ESG analysis and incorporate the findings in a variety of ways. Incorporating ESG factors or Sustainable Investing considerations may inhibit the portfolio manager’s ability to participate in certain investment opportunities that otherwise would be consistent with its investment objective and other principal investment strategies.
ESG investing is qualitative and subjective by nature, and there is no guarantee that the factors utilized by VanEck or any judgment exercised by VanEck will reflect the opinions of any particular investor. Information regarding responsible practices is obtained through voluntary or third-party reporting, which may not be accurate or complete, and VanEck is dependent on such information to evaluate a company’s commitment to, or implementation of, responsible practices.
Socially responsible norms differ by region. There is no assurance that the socially responsible investing strategy and techniques employed will be successful. ESG integration is the practice of incorporating material environmental, social and governance (ESG) information or insights alongside traditional measures into the investment decision process to improve long term financial outcomes of portfolios. Unless otherwise stated within the Fund’s investment objective, inclusion of this statement does not imply that the Fund has an ESG-aligned investment objective, but rather describes how ESG information is integrated into the overall investment process.
The Fund relies on the Data Provider for the identification of issuers that promote sustainable development based on their HIP Ratings; however, there can be no guarantee that the Data Provider’s methodology will align with the Fund’s investment strategy or desirable issuers can be correctly identified. Moreover, the United Nations Sustainable Development Goals (“SDGs”) 9, 11 and 12 may be modified or abandoned in the future and there can be no guarantee that the Fund will be able to continue to use HIP Ratings or find an appropriate substitute ratings system.
The Fund's strategy of investing in municipal debt securities of issuers promoting sustainable development may limit the types and number of investments available to the Fund or cause the Fund to invest in securities that underperform the market as a whole. As a result, the Fund may underperform funds that do not have a sustainable investing strategy or funds with sustainable investing strategies that do not employ HIP Ratings. In addition, the Fund relies on the Data Provider for the identification of issuers that promote sustainable development based on their HIP Ratings; however, there can be no guarantee that the Data Provider's methodology will align with the Fund's investment strategy or desirable issuers can be correctly identified. Moreover, the United Nations Sustainable Development Goals (“SDGs”) 9, 11 and 12 may be modified or abandoned in the future and there can be no guarantee that the Fund will be able to continue to use HIP Ratings or find an appropriate substitute ratings system.
An investment in the Fund may be subject to risks which include, among others, risks related sustainable impact investing strategy, municipal securities, credit, interest rate, call, data, California, New York, education bond , health care bond, housing bond, transportation bond, management, operational, authorized participant concentration, absence of prior active market, trading issues, market, fund shares trading, premium/discount and liquidity of fund Shares, non-diversified, state concentration risks all of which may adversely affect the Fund. Municipal bonds may be less liquid than taxable bonds. There is no guarantee that the Fund's income will be exempt from federal, state or local income taxes, and changes in those tax rates or in alternative minimum tax rates or in the tax treatment of municipal bonds may make them less attractive as investments and cause them to lose value. Capital gains, if any, are subject to capital gains tax. The Fund's assets may be concentrated in a particular sector and may be subject to more risk than investments in a diverse group of sectors.
ICE US Broad Municipal Index tracks the performance of US dollar denominated investment grade tax-exempt debt publicly issued by US states and territories, and their political subdivisions, in the US domestic market. Qualifying securities must have at least one day remaining term to final maturity, at least 18 months to final maturity at the time of issuance, a fixed coupon schedule and an investment grade rating (based on an average of Moody’s, S&P and Fitch). Index constituents are market capitalization weighted.
© 2006-2021 HIP Investor Inc. All Rights Reserved. The information contained herein: (1) is proprietary to HIP Investor and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither HIP Investor nor its content providers are responsible for any damages or losses arising from any unauthorized use of this information. Past performance is no guarantee of future results. All investing entails risks.
HIP Investor, Inc. (“HIP”) is a provider to Van Eck Associates Corporation (“Van Eck”) of proprietary research products and services, including ESG ratings, Sustainable Development Goal ratings, Opportunity Zone mapping, Climate-Threat and Resilience ratings, and Human Impact + Profit ratings (collectively, the “HIP Ratings”). HIP is the exclusive provider to Van Eck of HIP ratings and similar data used in connection with any sustainable municipal-bond ETF provided by Van Eck, including the VanEck HIP Sustainable Muni ETF. HIP Investor, Inc. (“HIP”) receives certain fees related to the assets under management (AUM) of the VanEck HIP Sustainable Muni ETF, which creates a conflict of interest with actual and prospective clients of HIP, and biases the objectivity of HIP when discussing, evaluating, and recommending the VanEck HIP Sustainable Muni ETF to actual or prospective clients of HIP. The determination to purchase or utilize the VanEck HIP Sustainable Muni ETF is an important decision and should not be based solely upon HIP’s recommendation, guidance, or services. HIP is an independent contractor of Van Eck Associates Corporation, however HIP does not control or supervise the services or products of Van Eck Associates Corporation, and reference to the VanEck HIP Sustainable Muni ETF does not mean that HIP has performed any level of due diligence on the services or products of Van Eck Associates Corporation. Users of HIP’s website, as well as actual and prospective clients of HIP, are urged to perform their own due diligence on, or consult with a separate registered investment adviser with respect to, the VanEck HIP Sustainable Muni ETF. There is no obligation to purchase or utilize the VanEck HIP Sustainable Muni ETF.
An investor should consider the investment objective, risks, charges and expenses of the Funds carefully before investing. To obtain a prospectus and summary prospectus, which contain this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus carefully before investing.