Environmental, Social, and Governance Risks in Public Finance: A Thematic Analysis

Disclosing risks and the financial impact of environmental, social, and governance (ESG) risk factors is a growing concern for organizations around the world. In the United States, climate-related financial risk disclosure has historically been state-specific; however, federal policies that impact state and local governments are changing that dynamic. Specifically, the Municipal Securities Rulemaking Board (MSRB), the municipal bond market regulator, has considered additional rules for ESG disclosure in the tax-exempt municipal market, which would affect all state and local government borrowers. In this paper, we review fifty-four public comment letters on ESG practices in the municipal securities market that were submitted during the MSRB’s ninety-day comment period (December 2021–March 2022) to identify the major themes that encompass the opinions of issuers, investors, and other market participants. Using reflexive thematic analysis, we analyze these public comments, which enables us to better understand the challenges facing state and local governments, as well as regulators, in dealing with ESG risks. Results show that respondents’ primary concern is the disclosure criteria for ESG-related information. The analysis highlights the diverse set of stakeholders that participate in the regulatory process and how their concerns differ from those of the issuers. We find the role of financial intermediaries and data providers to be significant in the formulation of ESG policy.