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What is ESG?

Environmental, social and governance (ESG) is an organizational social responsibility initiative used to track and measure an organization’s approach and footprint related to environment and social impacts, among other things. Internationally, ESG has been a more prominent focus for investors, and these issues are now gaining traction in the United States. In fact, ESG discussions and needs continue to rise in prevalence among U.S. state and local governments, particularly municipal issuers.

Multiple drivers propel ESG assessments, disclosures and considerations forward. First, investors demand to know more about ESG-related risks that may have material impacts on investment decisions, for both public companies and municipal issuers. Investors also seek more transparency around these ESG issues to align their investments with socially and environmentally responsible companies that demonstrate corporate values consistent with their values related to ESG or furthering their ESG goals. Additionally, COVID-19 impacts on municipal issuers placed heightened importance on governance and social issues. Finally, the Biden administration continues its focus on climate change-related issues and discussions, making environmental issues, including green projects, energy diversification and carbon reduction, increasingly important.

While there are no universally accepted ESG standards in the U.S. at this time, some disclosure considerations are generally included in each category which are relevant for state and local governments. The table below highlights some of these considerations.

ESG disclosure considerations


  • Risk of natural disaster
  • Pollution/cleanup costs
  • Energy diversity/climate
  • Infrastructure sufficiency
  • Mandates – state, regional or local
  • Natural resources/water availability


  • Public health
  • Community social/economic factors
  • Social equity
  • Diversity initiatives and considerations
  • Employee/labor relations
  • Affordable and available housing


  • Governance structure
  • Financial reporting transparency
  • Cybersecurity
  • Management policies, including a budget, debt and reserve policies
  • Board oversight and internal controls

Not every ESG category applies to each municipal bond issuer, but many of the same considerations extend across the many types of governmental entities. Additionally, some ESG considerations may find that more than one ESG category applies. For example, if an issuer is investing in bike trails to promote wellness within the community, but the trails also make it easier to commute to work and reduce carbon emissions, then there are both social and environmental implications.

Preparing for ESG disclosure – issues and tips

Now that ESG disclosure has emerged, it is here to stay. Governmental entities should prepare now to address ESG questions from 1) investors in their bonds and 2) members of the public and corporations in their communities alike. Regulators are also discussing and contemplating more ways to encourage transparency and consistency around ESG disclosures.

Evaluating potential ESG disclosures

What can a governmental entity, school, college or university, utility or library do to better understand these issues? Factor in the considerations below to evaluate potential disclosures around ESG and possible ideas to mitigate existing risks:

  • ESG assessment – A great place to start is an assessment of ESG considerations. Utilizing an assessment tool and working with professionals to assess areas of potential risks around ESG allows communities to be ready to address questions and to evaluate the need for market disclosures or opportunities to promote their ESG-related initiatives.
  • ESG standards – Since there is not one standard around ESG disclosures, consider reviewing publicly-available information provided by trade associations, such as the Government Finance Officers Association and the National Association of Bond Lawyers, and regulators, such as the Securities Exchange Commission and the Municipal Bond Securities Rulemaking Board. Baker Tilly will also provide ESG updates, so continue to look for future articles and ESG-related training opportunities.
  • ESG investor needs – When assessing disclosure, it is important to identify the issues a reasonable investor would want to know about, including in the context of the total mix of available information and before investing in municipal bonds issued by your governmental entity. An issuer may want to provide some additional ESG specific disclosure voluntarily, mainly if it is trying to attract certain types of investors who are focused on investing in green or socially responsible bonds. However, keep in mind, the additional ESG information provided must be accurate and contain no material omissions or misstatements. It is important to discuss materiality concerns with your financing professionals, particularly bond counsel and disclosure counsel, when working through these issues.

What are some tips to consider when evaluating ESG disclosure?

  • Consider the type of security for the bond issue and potential ESG factors which may be relevant. For example, consider that the issuer is a utility that is issuing bonds to complete a combined sewer overflow project which is a portion of its Environmental Protection Agency (EPA) approved long-term control plan (LTCP). In this case, it would likely be material to mention that the issuer has a long-term control plan in place and must complete additional projects to comply with the LTCP. Historically, the governing body has not approved sufficient rates and charges to support the completion of the projects. However, there were recent changes on the governing board, and new rates and charges were passed. Further, consider whether the issuer would need to provide additional disclosure around the historical support for rates and charges. This would be the type of discussion that you would want to have with the financing team.
  • ESG relevance may also depend on the type of issuer. As an example, a school corporation in an urban school district may want to consider a voluntary disclosure discussing social-economic factors and how the school district is providing services to target social equity initiatives. The relevancy of this disclosure increases if the project being funded with bond proceeds relates to these initiatives.
  • Consider completing either a detailed or high-level ESG assessment in advance of the financing to determine whether there are ESG disclosure considerations that should be assessed or discussed.
  • If you are making an ESG disclosure in your financial statements or other publicly available reports — particularly related to your finances — consider whether incorporating a similar statement in your offering document makes sense.

Again, because there is not a bright-line approach to ESG-related disclosure, take steps to address questions with your counsel and financing team. These discussions are important to ensure that you are making appropriate disclosures, both required due to the information’s materiality as well as offering voluntary information.

Once you are educated around ESG issues, you will be in a better position to assess potential risks and the disclosure of ESG risks when issuing bonds or releasing financial statements.

Our team can help you on your ESG journey. For additional information or to learn more about how Baker Tilly can help your community with an ESG assessment, plan and reporting, contact our team.

Baker Tilly Municipal Advisors, LLC is a registered municipal advisor and controlled subsidiary of Baker Tilly Advisory Group, LP. Baker Tilly Advisory Group, LP and Baker Tilly US, LLP, trading as Baker Tilly, operate under an alternative practice structure and are members of the global network of Baker Tilly International Ltd., the members of which are separate and independent legal entities. Baker Tilly US, LLP is a licensed CPA firm and provides assurance services to its clients. Baker Tilly Advisory Group, LP and its subsidiary entities provide tax and consulting services to their clients and are not licensed CPA firms. ©2024 Baker Tilly Municipal Advisors, LLC

Susan Borries Reed
Managing Director
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