Debt Committee Update.

• Author: Brock, Emily Swenson
• Position: COMMITTEE UPDATE

GFOA's Debt Committee has been hard at work crafting best practices for GFOA members who are contemplating making ESG disclosures. Many investors want more information on the potential impact of their investments, and many investors have identified municipal bonds as a way of making "impact investments." Because bond ratings and investor demand have a significant bearing on the pricing of municipal bonds, it is generally in the best interest of an issuer to disclose material information directly to the investment community through primary offering documents.

ESG refers to three key factors that affect a municipal issuer's credit profile, including climate risk and other environmental factors ("E"), long-term social factors ("S"), and governance issues ("G").

ESG factors represent areas affecting the long-term sustainability of a community, and the public markets are interested. Government entities play an important role in this overall assessment by providing specifics about their ESG challenges and action plans, and in doing so, increasing transparency to the entire municipal market.

Why ESG Is Important

The increasing number of extreme weather events in recent years has raised public awareness about climate change. Investors and rating analysts are not just looking for risks; they also want information about issuers' plans to address the risks. Any information an issuer has regarding estimates of the potential economic impact on its revenue structure or other identifiable and quantifiable risks may also be helpful to investors and rating analysts.

GFOA recommends that municipal issuers evaluate the development and disclosure of information about the primary environmental, social, and governance risks applicable to municipal issuers and their bonds in their preliminary and final official statements used in connection with bond sales and in other voluntary disclosure.

Identifying environmental risks

The first step in developing disclosure information for the E of ESG is to identify the primary environmental risks that apply to your government or its bonds. Disclosure information for E-environmental will take time to assemble and prepare. For this reason, even if issuers are not planning a bond issuance in the short term, issuers should consider compiling relevant information, when practicable, in anticipation of a future bond issuance.

This process should include specific item actions including:

* Identify the primary environmental or...