The GFOA Committee on Governmental Debt Management recently released an excellent, and timely, best practice on ESG disclosure. As hazards become more apparent in our everyday lives, both investors and rating agencies are spending more time assessing the risks an issuer might face from environmental, social and governance policies.
Here’s a link to the full best practice.
In the guidance published this March, the Committee recommended that issuers take proactive – and voluntary – steps to document risks they’re anticipating and/or measuring. Further, it recommends that issuers share the policies adopted to address those risk factors and circulate them for both primary and secondary market disclosures.
This best practice shows that the muni market can be driven and nimble on disclosure matters.
The importance of ESG disclosure has quickly grown for bond investors over the last few years. Just last month, the Securities and Exchange Commission announced the creation of a climate and ESG task force in its enforcement division to find ESG-related misconduct. This comes on the heels of acting SEC Chair Allison Herren Lee directing the SEC Division of Corporate Finance to increase its focus on climate-related disclosures in company filings.
This best practice is a great step, and the GFOA should be commended for its leadership as this guidance will influence its thousands of members. Impact investing is still evolving, including the use of common definitions, metrics, reporting standards, etc. Notices like this will help cement the urgency behind ESG considerations and hopefully foster more widespread adoption of these practices.
As “social” and “governance” risks catch up to the more-easily measurable “environmental” risks, this guidance, and more like it, will act as a great foundation for the municipal market to lead on ESG disclosure.