Environment, Social, and Governance (ESG) factors have emerged as an area of debate within public finance— both from a labeling aspect, where issuers attempt to attract a broader class of investors by indicating their bonds target desired policy outcomes, and from a heightened risk assessment and disclosure aspect, where materiality and investor expectations are driving issuers to include greater information on perceived risks posed by these evolving issues.

Why We Care

Regulators and market participants have greatly increased their awareness and activities in the ESG space. In the past few years, the U.S. Securities and Exchange Commission (SEC) has proposed several rule changes relating to ESG that could either directly or indirect affect our municipal markets.

Our Stance

ESG is a rapidly developing issue with many nuances and complexities, but our core message comes down to three points:

1. The corporate securities and municipal securities markets are wholly different;
2. Existing and well-established understanding of materiality already covers disclosure of relevant ESG risk factors; and
3. Labeling is a deal-specific decision that, for the time being, should be left between the issuer and their buy side partners.