KBRA releases research highlighting the importance of stakeholder interests as the U.S. municipal bond market seeks to address the increasing demand for environmental, social, and governance (ESG) information.

The Municipal Securities Rulemaking Board (MSRB) issued a Request for Information (RFI) on ESG practices in the municipal securities market (RFI 2021-17) on December 8, 2021. The responses from market participants are varied and generally reflect the different roles that participants play in the market, ranging from calls for specific reporting requirements to whether such rules are needed. Further, some respondents questioned MSRB’s authority in pursuing this initiative.

Key Takeaways

• Given differing roles, it is not surprising that interests and preferences vary widely among participants across the municipal market regarding ESG factors and disclosures.
• Generally, investors are seeking more ESG information with increased standardization, while other market participants are more cautious, noting the availability and analysis in this area needs time to develop and that rules and regulations should not get ahead of this process. Some prefer venues other than the municipal market to address ESG factors.
• Many responses called for different approaches for the many sectors in the municipal market and the many areas encompassed by ESG.
• Competing stakeholder preferences highlight why KBRA does not offer ESG scores driven by subjective views and preferences, but instead focuses on the tangible credit impact of stakeholder preferences on an issuer’s operating and capital plans and financial performance.

Click here to view the report.

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About KBRA

KBRA is a full-service credit rating agency registered in the U.S., the EU, and the UK, and is designated to provide structured finance ratings in Canada. KBRA’s ratings can be used by investors for regulatory capital purposes in multiple jurisdictions.

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