Letter to MSRB re: RFI on ESG Practices in the Municipal Securities Market

Ronald W. Smith
Corporate Secretary
Municipal Securities Rule Making Board
1300 I Street NW, Suite 1000
Washington, DC 20005

Dear Mr. Smith,

The American Bankers Association (“ABA”) appreciates the opportunity to provide feedback on the Request for Information on Environmental, Social and Governance (ESG) Practices in the Municipal Securities Market (“the Request”) published for comment by the Municipal Securities Rulemaking Board (“Board” or “MSRB”). The Request is intended to obtain input from market participants on ESG trends in the municipal securities market and to help inform the MSRB’s mandate of protecting investors, municipal issuers, and the public interest by promoting a fair, efficient and transparent municipal market. The Board is specifically seeking information concerning the municipal securities market as it relates to: 1). The disclosure of information regarding ESG-related risk factors and ESG-related practices; and 2). The labeling and marketing of municipal securities with ESG designations. Accordingly, our comments below will be of considerable interest to the MSRB.

ABA and its members understand that broader environmental policy and goals, and more specifically, appropriate disclosures from all business sectors, have implications for all municipal market participants. Businesses and providers of capital need to identify and assess the financial impacts of potential climate risks in order to manage the global challenge of climate change. ABA members are lenders, underwriters, servicers, investors, and asset management firms that gather, assess, and evaluate climate risk-related information to make decisions for their investors and other stakeholders. Our members are also key providers of capital in their specific communities and lending regions in an economy that is focused to reduce its dependency on carbon-based energy. Thus, we welcome the opportunity to engage on this important topic on behalf of our members.

ABA has developed the following principles to guide our advocacy on climate related financial issues:

• Banks should be free to lend to, invest in, and generally do business with any entity or activity that is legal, without government interference.
• Prudential regulation of banks should not be a substitute or proxy for efforts to carry out broader social policy or to regulate specific businesses and industries.
• Prudential regulations should support orderly transitions in local economies and allow banks to finance the new technologies necessary for a lower-carbon economy.
• Regulation and supervisory expectations must be plausible, market-based and appropriately scaled to bank capabilities and the economic realities of the communities they serve.
• Capital and liquidity requirements should not be tied to regulatorily-driven scenario analysis or climate related financial stress testing, which are still in early developmental stages.
• Any disclosure requirements should be focused on what is necessary to inform business and risk management decisions.
• US financial regulators must work together closely, and with international bodies, to ensure consistent definitions, standards and avoid conflicting or overlapping requirements.

We believe these principles are consistent with the Securities and Exchange Commission’s (“SEC” or “Commission”) current efforts and should guide the Commission as they continue to consider regulating disclosures related to climate-related financial risks. With that in mind, we note that MSRB’s Request raises concerns that may unnecessarily impede the Commission’s ongoing efforts, and current initiatives, as it relates to disclosure requirements. ABA supports the Commission’s pursuit of a deliberate and sensible climate risk disclosure regime, which contributes to effective climate risk mitigation and capital allocation throughout the broader economy. We believe that information about climate-related financial risks will allow market participants to more readily assess, price, and manage risk and allocate capital accordingly.

Download the comment letter to read the full text.