White Paper: ESG Disclosure in Municipal Offerings

Environmental, Social, and Governance (ESG) bonds have generated increasing investor demand, media attention, and regulatory focus over the past several years. ESG bonds, broadly encompassing “green bonds” and “social bonds,” first emerged in the corporate sector in response to growing concerns over climate change in the 2000s and functioned as an outgrowth of the socially responsible investing movement, which certain investors in the 1980s and 1990s used to target varied social ills such as apartheid and tobacco companies. While the universe of both ESG issuers and investors has expanded markedly since that time, the market is still developing standards for labeling bonds as “green” or “social,” and a uniform consensus has yet to be reached for either in terms of appropriate projects or the necessary level of resulting environmental or social impact benefits. 

ESG bonds have become an increasingly popular option for municipal issuers and borrowers (collectively referred to throughout this paper as “municipal issuers”) attempting to fulfill their own ESG objectives while meeting new investor demand. There is no novelty to municipal issuers issuing bonds to fund projects that are beneficial for the environment or that provide a positive social impact, such as public transportation, water and wastewater management, affordable housing, or education. Now, however, municipal issuers increasingly add either a “green” or “social” label to their bond issues to attract new ESG-focused investors, thereby enhancing demand and potentially reducing yields paid by these municipal issuers. Accordingly, there are important considerations for municipal issuers to weigh before choosing to label their bonds as ESG bonds.

This white paper describes current market standards for ESG bond labeling, verification, and disclosure, with a focus on green bonds and social bonds, best practices for primary and secondary market disclosure and post-issuance reporting, and key considerations to guide municipal issuers and their financing teams when preparing to issue ESG bonds.

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