ABA Responds to MSRB’s Request for Input on ESG-related Risk Factors

The American Bankers Association today issued a comment letter responding to the Municipal Securities Rulemaking Board’s recent request for information on environmental, social and governance trends in the municipal securities market. Specifically, MSRB sought input on the disclosure of information regarding ESG-related risk factors and ESG-related practices, as well as the labeling and marketing of municipal securities with ESG designations.

ABA recommended that the MSRB focus on the transparency of disclosures, noting that the reliability of environmental metrics will be challenging in the face of unestablished global principles and guidelines. ABA encouraged a flexible approach to disclosure, “reflecting the differences in the circumstances and complexities of financial institutions, participants in the municipal market and their respective business models.” Regarding the labeling and marketing of municipal securities with ESG designations, ABA stressed that the identification of climate designations will evolve, adding that, historically, climate-related financial risks have been rooted in banks’ risk-management practices and “naturally appear through the processes of dynamic market conditions, economic and counterparty data that overwhelmingly contribute to strong risk management.”

“Ongoing engagement with industry analysts, third-party data providers, and relevant industry regulators is important for the future of this important issue,” ABA wrote. “We believe that priorities for investors as it relates to ESG can and will evolve over time. Thus, ABA recommends the [SEC] and other financial regulators work to address how preparers consider materiality in an ever-changing environment.”