ESG disclosures are separate from GAAP required disclosures and may be included as part of the primary offering documents when issuing debt, as part of annual continuing disclosure, or as part voluntary disclosure. Bond rating agencies and investors may be looking for this type of information as they are evaluating governmental securities. GFOA has recently issued best practice guidance related to ESG disclosures and describes these disclosures as follows:
ESG refers to three key factors that affect a government’s credit profile, including an exposure to 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. Both investors and rating analysts have increasingly utilized outside resources to assess ESG risks for municipal issuers. Governments play an important role in that overall assessment by providing specifics about their ESG challenges and action plans and in doing so, increasing transparency to the entire municipal market. ESG disclosure provides governments the opportunity to tell their story of what they are facing and how they are addressing the issues, a point of view that is valuable to the broader municipal market. (from the Environmental best practice link)
GFOA’s best practices for each of the components of this disclosure can be found at the following links:
GFOA also has a best practice related to Voluntary Disclosure. The Governmental Accounting Standards Board (GASB) has also posted a paper that highlights where current GASB guidance intersects with ESG matters.
Questions related to ESG disclosures may be best directed to bond counsel, disclosure counsel, and/or municipal advisor.