- What's the difference between labels and credit risk?
- What is needed to help market participants integrate ESG most effectively?
- Where are the obstacles and how to address them?
Karen Daly (00:09):
Thank you for hanging in there. I've been looking forward to this panel and the discussion we're going to have for a while. It's going to be broad ranging, covering the difference between ESG labels and credit risk to resistance to ESG investing to disclosure. Before we begin, I'd like to take a minute to introduce our panelists. Jamiyl Flemming, Senior Vice President, Siebert Williams Shank Company, Richard Freund, Associate Director Capital Markets CDP North America, Dave Sanchez, director Office of Municipal Securities Securities Exchange Commission. So let's get to it. We're going to start off with basically an educational question and we're going to ask Richard to help us understand what is the difference between ESG labels and credit risk.
Richard Freund (01:16):
Sure. Thank you for having me here. It's a pleasure to be speaking with you all. I suspect we're going to spend some time untangling this question and challenging whether or not these are actually separate things, but at face value, the concept of an ESG label is essentially this idea that you're out shopping at the supermarket, you're looking for those organic eggs, and you're looking for that USDA label that guarantees without you needing to track down whoever owns those chickens and put those eggs in that carton that you're buying something that meets some sort of quality standard. And that's basically what the ESG labeling space is, an attempt to reach that point on assets investment vehicles that meets some sort of environmental or social or governance related goal. And so basically it's an attempt to get around the challenge of doing that work as an individual credit analyst or individual issuer or underwriter or whomever you are in the market.
(02:17)
Whereas the concept of the ESG risk is risk is essentially risk. And so the concept here is that there are types of risks that we did not have to deal with 50 years ago that we now face. And so a perfect example getting out of ESG completely well, depending on how you look at it would be cyber security, right? So 50 years ago, you know, didn't need to think about cyber, it just wasn't a factor at all. And the world has now come to a point where if you're not taking cybersecurity seriously, that's a major red flag for anybody who's going to work with you because that's a substantial risk. And so an ESG risk could, as far ranging as the risk that a C-suite take sexual assault allegations seriously to overpaid CEOs to a failure to evaluate how rising sea levels might affect a given facility someone's trying to finance. It's a very broad range that could take, but it's essentially the idea that we are considering those as risk factors.
Karen Daly (03:24):
Dave!
Dave Sanchez (03:27):
I think that was a great breakdown. So it is slightly different and from a regulatory standpoint one with the financial risk is something that folks have dealt with for a long time. Is this material, is this not material? And then even with the labeling there are sort of similar concepts within the regulatory structure, but it basically comes down to what Richard said is if you're labeling these eggs as organic and they're not organic, then that's going to be a problem. So I think there is a difference, but it's concepts that folks have dealt with from a regulatory perspective for a long time.
Jamiyl Flemming (04:02):
Sure. And when I think about an ESG label from an underwriting standpoint I think about it being tied to specific projects that are being bonded for. And those projects can often be used as a marketing tool that label can, I should say to help better market that transaction. And I think frequently when the bonds do have that ESG designation, they're often aligning with the green bond principles, the social bond principles and that's the benefit of that ESG designation that can either be self-certified or a third party verifier Karen, you to be behind that labeling. When I think about credit risk, I don't think about it so much as tied to a specific project. It's far more broad than that to me. I think a lot of issuers are typically taking a lot of steps to mitigate some of those credit risks. So I do think that it's important to distinguish the two.
Karen Daly (05:01):
So when we think about credit risk in the context of ESG issues, we think about how these factors affect the risk of default or how they may affect the risk of default. And we'll talk a little bit about that more later. One of the things that we wanted to do with this panel is discuss topics that were not necessarily addressed in other panels on ESG. So our next question is a slight variation on a theme, which is in your view, we'll start with Jamil. Is there a need to distinguish between positive environmental or social impact and ESG financial materiality? Why or why not?
Jamiyl Flemming (06:02):
I think there absolutely is. I think the two are related, but very, very different. Again, once, when I think about impact, I think about projects whether they be environmental whether they be social and how that impacts the community per se. When I think about potential financial materiality actually think back to a podcast that you hosted as a matter of fact with two officials from New York City both on OMB and the controller side in the identified a number of environmental risks that New York City faces the top three being extreme heat, and then inland and coastal flooding. Now people don't know this because you can't really see heat per se, but heat's actually the number one cause of death in the US among in weather related deaths. So that unfortunately tends to affect the poor and black and brown communities disproportionately. And that at times has to do with the housing. It often affects healthcare, which clearly has a financial materiality that should be accounted for. When I think about it from a social perspective, I think about certain Midwest or central states that have reductions in the working age populations that have stagnant or declining populations, which puts pressure on various revenue sources also, which once again, has a very, very serious financial material impact.
Karen Daly (07:32):
Dave, Richard, thoughts on financial materiality.
Dave Sanchez (07:40):
And then just reminded by the way, the comments I give today are my own and do not reflect the views of the commission or any other of my fellow employees at the SEC. Also want to say, this is the second panel I've done in a row that has this interrogation style lighting really, really relaxing. And if the other panel hadn't been subject to it as well, I might've thought it was a little personal, but I see that other people had it. But anyway, so yes, I do think even from a regulatory perspective, it's important to make this distinction right, because your basic financial materiality applies in every case. So under the rules applicable to municipal securities, you know, always have to consider financial materiality. So this applies across the board when you're talking about positive social environmental impacts and you're going to market bonds that way, you're making a choice. So you can opt into that and it does have a regulatory requirement, meaning that once you start promising things then those things better be accurate, but it's more, but it's optional. So from a regulatory perspective, it is important to draw a distinction between the two because financial materiality applies in all cases but once you're talking about impacts and promising impacts, that's your choice. And so it is a different perspective from our perspective.
Richard Freund (08:59):
Yeah, I'll just add, I mean, I agree with both of those statements completely. I mean, think if someone says to me somebody wants my money and they say to me, I don't take this risk seriously. Well, why do I want to invest with you? Why would I want you to underwrite my deal? Why would I trust? Why do I want to work with you? If you're telling me that you're not on the risk spectrum, I mean, that's just fiduciary duty. And when we think about regulatory issues and compliance, this is really, that's, I think, a very clear case to make within a certain audience. And so if you're talking to somebody where regulatory issues are a concern, then that's the conversation you should be having. On the labeling side, that has much more to do with attracting fund in flows. And I think that's knowing who your audience is critical and distinguishing whether you're really going to focus on risk.
(09:54)
So if you're talking about a KBRA, I expect you to deal with risk your job. That's what you do. If I'm trying to get somebody to put their money into my fund and I want to convince them that they desire certain impacts, they want their money to go towards certain causes, I want to be able to show them that we can meet that demand that's a completely separate goal oriented at a different audience. I, I may also want to convince that customer that I'm doing a good job with their money, that I take risks seriously, that I'm prudent, but that's a different goal than what I have if I'm trying to think about the impact of those funds.
Dave Sanchez (10:30):
But to be clear, right, from a regulatory perspective the disclosure rules are agnostic about whether you have impact or not. So for example, if you did say, we don't take this risk seriously and we're not doing anything about it and that's actually what you're doing, that's not a disclosure violation, right? Because you're being honest about your approach. Now, you may have fewer investors than somebody else, but you are making a materially accurate statement if that's actually how you feel about it and what you're doing about it. The issue would be is if you said, we are doing things about it and you were not that would be a issue from a regulatory perspective.
Jamiyl Flemming (11:07):
I think one additional point that's very salient as it relates to financial materiality relates to pensions. And obviously we have municipalities that are invested in publicly traded corporations that are at times subject to certain effects of climate change. So it's important to know what some of those risks are when we make these investments so that we can ensure that our constituency is not adversely impacted.
Karen Daly (11:38):
So I want to talk a little bit about the market now, and our next question is, what is needed to help market participants integrate ESG most effectively? What are the obstacles and how do we think they should be addressed? And we'll start with Dave on this question.
Dave Sanchez (12:03):
Sure. Can I ask, what do you mean by integrate?
Karen Daly (12:06):
Yeah!
Dave Sanchez (12:08):
What are you, I mean, cause I can answer, but I just wanted to know if you had any special meaning with respect to integrate. Can you hear me?
Richard Freund (12:17):
What do you hear you mean by integrate? Integrate?
Jamiyl Flemming (12:21):
What do I mean by Integrate?
Karen Daly (12:22):
Sorry? Integrate into disclosure. Integrate into, that's typically how it's?
Dave Sanchez (12:29):
Okay. Yeah, sure. So I think from my perspective one of the issues frankly is that people think this is something different than what they've been doing. So when you're talking about disclosure with respect to climate risk in the municipal market, right? We're still operating from a materiality standpoint. So it might be a new topic. And I think Richard mentioned earlier how new topics arise in the context of disclosure all the time. Cybersecurity a great example. So this is something that is a new topic that people have to think about, but the rules have not changed. And so to me, one of the obstacles is that people think they're operating under different rules. And so they may get a little more confused than they need to get, but you are actually operating under the same rules. And so I think that's a very important point. A lot of times the complication can be just internally, particularly if you're a large municipal organization that has many different moving parts and figuring out what as the other areas of your organization are doing either from a facility standpoint, from a policy standpoint, and making sure that that's accurately included in your disclosure.
(13:34)
But fundamentally, right, we're operating under the same principle. Is there something happening or are we doing something that has a material financial effect on our ability to pay back these bonds? So it's fundamentally the same question.
Jamiyl Flemming (13:51):
The most important thing for me is probably standardization. I think when we say ESG, it means a variety of things to folks that are in this room. So whether it be underwriters rating agencies investors, and even from one investor to the next criteria that they use to determine if something meets their environmental or social criteria is different from one buyer to the next. So therefore standardization, I think it's very, very important. I think secondly, we had a panel a moment ago that's spoke about data, and I think data is really, really important. I think Richard deals a lot with environmental data, which is kind of been around for a bit longer. I think social bonds are relatively new and that is somewhat lacking in that regard there. And I think once we start having more data, it'll allow us to make more investment investment decisions that are more driven focused on actual metrics and KPIs, key performance indicators, and it'll allow us to track success of these projects going forward.
Karen Daly (14:50):
Richard?
Richard Freund (14:52):
Yeah, I mean, two thoughts. I think just a general piece of advice is I think people new to some of these concepts can get hung up on trying to determine what is ESG. And so I often I'll just say, just delete ESG and ask yourself the same question and you're going to find you have all the tools you need to answer it. And so that, just try that. And I think in general, the removal of the concept of ESG from the conversation is actually very, very helpful. And a goal we should get to. I, to me it would be, and I'm going to take this opportunity to compliment KBRA for their approach on ESG. I think it's commendable. And I think a part of what's there is this idea that if it's a risk factor it in.
(15:36)
If it's not a risk, no one that's appropriate. And when it's not for you to think about, but instead of categorizing ESG as this new separate different thing, just think of risk as risk, think of impact as impact, and then make your decisions accordingly depending on who you are in the market. The other thing I would say, if you do want to get away from risks and think about impact and you want to show impact for whatever reason, and there's lots of different constituents that want you to do that. I started in Munis and I'm passionate about the public finance space, but I'm responsible for covering the entire range of asset classes that we work with and something that I think every other just thinking from an investor perspective, every other asset class out there, people are panicked about this concept of the millennial wealth transfer and this idea that we're in a moment now, we're in the next decade, the largest intergenerational transfer of wealth in human history is taking place from the baby boomer generation to their children.
(16:36)
And those children as they come to inherent wealth, they have different priorities in terms of investments than their parents did. And a lot of traditional players in the capital markets are absolutely panicked that those new investors are going to run off to Robinhood or they're going to see a name, I don't want to name anyone in particular, but they're going to see some of the big names and think, oh, those are bad. I don't like those. For whatever reason, I'm going to go over to nice Green Climate positive happy fund and put all my money in that. And the wonderful thing about this asset class is you have an incredible opportunity to not have to prove why what you do is valuable. I think it is a very obvious and simple case to make to a younger investor that's passionate about investing in their community, investing in the built environment, cleaner air, cleaner water, munis have this ability to really sell that. And I have not yet seen a lot of public finance professionals take advantage of that fact and really lean into how in demand and how attractive that is to a younger investor. And I think prioritizing that and recognizing that value, you're out in front of every, every other asset class out there that to find a way to show why they're not doing something bad or harmful. And this asset class very rarely is in the position of, I think really claiming their credit that it's due for that work.
Jamiyl Flemming (17:58):
If I can piggyback on two points that Richard made, the first of which is that folks like KBR have been doing this for quite some time now. So governance for example, has long been incorporated into the agency's assessment from a credit risk standpoint. And then secondly, as it relates to these younger investors that are coming into the market, I think that's part of the reason why you're seeing such fund flows into this space right now as well. And I think in addition to that, causing an increase in integration of ESG, I think unfortunately we have occurrences like Super Storm, Sandy, hurricane ida, you have Covid hitting and these folk folks forced us to open our eyes in certain instances to places where we're lacking in resiliency, we're lacking in equity from a healthcare standpoint. And I think that will allow from more integration as well.
Karen Daly (18:49):
So our next question relates to the topic that's been in the press for about a year, and that is this issue about a backlash against ESG investing. It's been in the bomb bonfire, it's been in the Wall Street Journal, it's been in the New York Times. So let's talk about it for a minute. And I guess the question is, is what we're seeing a true backlash in the United States against ESG investing or is it more a matter of clarifying expectations around ESG integration, improving transparency and being clearer about what is meant by positive environmental social impact versus financial materiality? I mean, this is one of the seminal topics in our world today, so I think we'd be remiss if we didn't talk about it a little bit. And Jamil, we'll start with you.
Jamiyl Flemming (20:00):
All right, thank you. I'll have at it maybe I have on my rose colored glasses right now. My glasses close to half full. I'd say it's the latter. Quite frankly. I think we need more transparency, more education, more clarity. The backlash that I've observed to me fits in two buckets, the first of which is opposition to regulation as it relates to disclosure. I've heard little backlash frankly, in terms of putting disclosure out there. It's just the mandating of it. So I think quite frankly, if we can encourage folks to voluntarily disclose a bit more, that might help things in that regard. I think secondly, some of the backlash relates to investment and this notion that ESG is solely political and that it's not financially prudent and at times you're sharp responsibilities from a financial standpoint. So I think it can be really, really important as we do develop that data and we can show that some of these investments in clean tech and things of that nature are actually profitable and do not represent you short responsibility as a fiduciary. I think that would be really, really important as well.
Karen Daly (21:22):
Dave,
Dave Sanchez (21:23):
Sure, I'll talk about the backlash against regulation because seems like that's in my area
(21:32)
But so one, I think it's important, obviously what happens in the corporate market, which has a totally different disclosure regime than the municipal market doesn't transfer over automatically. The rules that apply to corporate disclosure are different than the rules that apply to municipal disclosure. So fundamentally that's important to remember. And then on the municipal side right now, folks have the same requirements they've always had as I feel like I say it at every conference. So there is no difference. So I think a lot of the backlash, particularly with respect to the municipal market, is assuming that a corporate style disclosure regime would come to the municipal market, which has not been proposed and so is not happening at this particular juncture. Also, that style of disclosure regime has never been imposed in the municipal market in any way. So it seems a little odd that folks would think that this would be the first place that it would. So what I would say to folks again is if you follow your standard disclosure requirements, continue to provide things on a voluntary basis those are always great ways to avoid regulation because USU usually regulation is stepping in to fix a problem. And if there's not a problem, then there's nothing for us to step in to fix.
Richard Freund (22:55):
Yeah, I would say for the corporate space, it's the former. There is a real anti-ESG backlash there, and I'm happy to talk about that in the municipal space. I truly think it is the latter, and I think for the reasons Dave have just enumerated, it's fundamentally about coming to an understanding of what's expected, what's changing and what that means. But what is expected, from my understanding of the statements of the SEC in the United States and then it's sister agencies around the world, what's expected of companies and what's expected of the public sector is very different. There's a lot of history, there's a lot of precedent, and that has led to a very different response to this moment.
Jamiyl Flemming (23:38):
I think what's expected, I think that's an important way of phrasing it, because I think a lot of times as an underwriter, I speak to issuers and my clients, they don't always know what's expected from investors. They don't know what to disclose, quite frankly. So I think providing more transparency there would be key. That standardization that I mentioned there would be key as well, because I don't think those necessarily always oppose to disclosure. They don't always know what to disclose.
Dave Sanchez (24:05):
Well, and I think it's important because there is some aspect of disclosure that particularly that you're dealing with that is marketing. So some of what you're doing and struggling with is it's not a struggle from a regulatory perspective. It's like, well, we're trying to fit in with everybody else so that people understand our bonds. So you can have to deal with that kind of struggle, but it's not truly a regulatory struggle because regulatory struggle just asks you to disclose material financial information. The fact of getting it into a form that everybody can understand is a little more about dealing with investors specifically rather than a strict regulatory requirement.
Jamiyl Flemming (24:43):
And I think to that point about there being a strict requirement, you look at a lot of ESG labeled bonds in the market right now. Cause I think a lot of the disclosure backlash often relates to non labeled financings. But you look at labeled financings, we have the green bond principles from icma, we have social bond principles, and the vast majority of deals focus on demonstrating alignment with those four core principles. And that's not a requirement. It's voluntary. However, in some instances you can say that investors have demanded this information and it's almost forced issuers to disclose this information without habit being required.
Karen Daly (25:22):
Interesting point. So Richard talk a little bit about the challenges around ESG. Has the current challenges around ESG in the US changed CDPs facilitation of corporate climate disclosure at all? And have you seen any changes in the way issuers approach disclosure over the past year or so? And then to further add to your load as we were discussing work before we came in here, if you could give us some of your impressions about municipal disclosure, which in my on scientific view has improved depreciable over the last several years. I think everybody would be interested in hearing.
Richard Freund (26:21):
Yeah, absolutely. I'd be happy to. And I'll say I have to give the disclaimer here that when I talk about disclosure, I am not talking about what you think I'm talking about, which is to say we're not talking about official statements we're not talking about ongoing reporting. I'm not really talking about use of proceeds reporting but CDP, for those of you who don't know, is formerly the Carbon Disclosure Project. We run where I should say a nonprofit headquartered in London, I work out of our New York office and we run and have run for 25 years the world's largest voluntary environmental disclosure mechanism. And what that means is, again, it is not financial disclosure. None of this is, we're not talking about material non-public information. We're not talking about anything that will constitute something that could in any world be regulated by the SEC.
(27:12)
We're talking about statements that companies or sovereign governments voluntarily make to the public for a variety of reasons. So on the corporate side again, we've been doing this for 25 years and we have basically utilized the communal request of the capital markets by signing on different investment firms, essentially asset managers and asset owners predominantly. But increasingly, banks are getting an end. Insurance is getting involved as well. And we send letters out to tens of thousands of different institutions asking them to disclose to their investors and to their bankers and to their insurers in a centralized, standardized, coordinated manner through CDP. And I mean, what we've seen really in the last couple years has been completely unprecedented and incredible and we're scrambling to keep up. But since the signing of the Paris Agreement our disclosure's grown well over 300%.
(28:12)
In terms of response to investors we had a 48% jump from last year to, I'm sorry, friends two years ago from 2021 to 2022. Now a 48% jump in corporate disclosure. So we now have over 65% of global market capitalization disclosing on a voluntary annual basis through our systems. We've got about 85% of S&P 500 disclosing in total. We have about 20,000 companies now disclosing on an annual basis and we're ramping up. So we're adding another 1300 companies in the United States alone next year that we're going to be targeting with that investor request to disclose. So this is to say, again, we've been doing this for 25 years. This is completely standardized and normalized at this point. And we were gratified actually to be named as an example of best in class voluntary disclosure in the SEC's rulemaking on the corporate side. We were named over 90 times in that document, which we were very pleased about.
(29:02)
And I think what I would say is it really just getting back to this moment that we're in and what role anti ESG may play that this is completely past the point of being standardized and normalized. There are hundreds of thousands of people around the world who are these voluntary disclosure specialists. This is their job. There's a whole industries and conferences built up around this. And we're at a moment now where I think between the regulatory signals coming from governments around the world, including in the United States, and truly the exogenous shock of covid has really made it clear to a lot of institutions that you have to think about these sorts of risks or you're falling behind, you're not taken seriously, you're not showing good governance. And if you're not showing good governance, as I was saying earlier, people want to ask, well, if you're not taking this seriously, what else aren't you taking seriously?
(29:52)
And why should I do business with you? And so that's really, we're just where we are is just in a moment of absolute growth and I think enthusiasm and real clarity that this is just absolutely a permanent part of the expectations from the private sector. On the muni side things are a bit different. We do run, do run parallel programs. So we have about 1200 governments, sub sovereign governments and public entities around the world disclosing. We also run investor campaigns. So we run a coordinated municipal disclosure campaign on an annual basis. So we've got about last year about 20 firms collectively managing about 8 trillion requesting disclosure from let's see, we had about 700 issuers in the United States last year, received an investor request to disclose through us, and we had about a 33% response rate on the corporate side. We had a 51% response rate last year.
(30:47)
So there's certainly lower responses there, but that worked out to about 230 issuers responding to their investors voluntarily through us in this manner. So it's a newer concept and there certainly is a lot caution, but I think in general, as more people ask for what they want as more firms, as more underwriters say, Hey, this is going to look good when you go to market, as more investors are saying, this is what our clients are asking us for, can you show us, make this about something that we can really sell on market? Tell us doing good storytelling is really at the heart of any good bond deal. I think anybody in this room would agree, and it comes down to an ability to do that through these, this kind of voluntary disclosure.
Karen Daly (31:33):
Any other observation though, disclosure? Okay. So continuing with the theme of disclosure Dave, obviously the SEC came out with a climate related financial disclosure proposal last year. Can you talk about why this was a priority at the agency?
Dave Sanchez (31:58):
So obviously this financial disclosure was related to public reporting companies, so not a muni proposal but the SEC has been talking about environmental risks in disclosure since the 1970s and even in as recently as 2010 put out guidance with respect to climate change disclosure. So this is not something that kind of came out of nowhere. It's a continuing theme. I think from the muni perspective, why it's important to us is that it is something that folks are struggling with. They're struggling with it because it's a new risk, but also because it's a risk that kind of spills beyond your borders. So sometimes that can be especially difficult to deal with how do we disclose risks that aren't just our risk, but potentially involve other agencies, a other areas? So to us it's party for that reason that we want to make sure that people understand how to operate in this space but also how to give good disclosure to investors. Because at the end of the day, I think what triggered right, the disclosure, the proposal on the corporate side is investor demand. And since we're charged with protecting investors once there is sufficient investor demand and sufficient investor interest, then there is very likely to be a response. And so this is why it continues to be a priority, because it's a priority for investors.
Karen Daly (33:31):
Jamiyl, the municipal ESG market has grown fairly rapidly in recent years. How do you envision this space evolving in the coming months and years?
Jamiyl Flemming (33:45):
Sure. There's a number of quick hot button topics I'll just throw out there that I think we will see changing in the coming months and years. I'd say first of which is potential regulation, which I won't go into too much more. We've already kind of beat that one up. So there's that. There's also the rating agencies and the various methodologies I think that could evolve over time. Speaking of evolution, I think disclosure, we've already seen that change over the past years now will continue to do so. I think I mentioned data previously. I think the types of data that we see from an environmental and social standpoint will change. Also I think the elephant in the room when discussing ESG is often a pricing benefit, which I'd say maybe a handful of deals have realized. Seabert was able to be senior manager on a transaction for a Fairfax County a couple years ago that did see a pricing benefit of one to three basis points.
(34:38)
The city of Chicago a few weeks ago due their sales tax credit relapsed the pricing benefit of three to five basis points as I think Nat Singer mentioned earlier today. So I think hopefully continue to see that pricing benefit in our space in the primary market more frequently. We do see it pretty actively in the secondary market. It's very, very common in the corporate space as well which tends to foreshadow what we're going to see in our market. But I'll say lastly it's the idea of additionality or incrementality. I think to this point, we've seen a lot of issuers that issue issue. ESG bonds have a capital program full of projects that they've been issuing for decades upon decades, and they're like, oh, this looks like ESG, I'll put a label on here. But a lot of what we do in the muni space could theoretically be deemed ESG and I think investors know that.
(35:34)
So they want to see issuers kind of going outside comfort zone and really implementing new projects that kind of go above and beyond business as usual. I think we're seeing that in New York state with their cannabis fund which is offering funding and guidance to black and brown entrepreneurs that have typically been disproportionately affected by cannabis in the past. I think this deal was not labeled, but Dasny on behalf of Albany County executed financing about a month or so ago for the raise to age program, which was designed to reduce recidivism and kind of protect our youth, if you will. I think also, like I mentioned Chicago moment ago, the city of Atlanta Sieber was joint senior on both those transactions. They were both their inaugural ESG financings for Chicago. It provided funding for their Chicago recovery plan and for Atlanta for their moving Atlanta forward and both of which included projects that really did go above and beyond what they typically do as a city and they're required to do. And I think investors want to see that, and I'll think you'll be seeing more of that going forward.
Karen Daly (36:46):
When I think about this, sometimes I have to remind myself we're still in the infancy.
Jamiyl Flemming (36:51):
Very much so!
Karen Daly (36:52):
Of these efforts, I mean, this is probably the 10th panel that I've participated on ESG, but if you think about all of us who have been in the industry for a while this is a relatively recent development. And to your point that municipals are the original ESG investment that I think has always been true. Just these other aspects of ESG are now being crystallized. And again, we're in its infancy.
Jamiyl Flemming (37:36):
No question.
Karen Daly (37:43):
We don't have a lot of time left, so I'm going to pick up the pace here. I'm just very mindful of the clock in front of us. ESG investors are always clamoring for more ESG information. Is it possible to structure ESG related disclosure that makes it a simplified process for issuers while also providing investors with the information they need to make more informed investment decisions? Sort of a loaded question Dave, we're going to start with you.
Dave Sanchez (38:20):
Sure. So what you just said about being in the infancy I think is really important because it does take a while for folks to come to a standard. Having done disclosure in the municipal market for almost 30 years before I went back to the SEC a lot of times when there was a new thing to disclose, it took a while for the market to get in its groove and figure out exactly how was going to be structured and start to structure it in a way that was more uniform for investors to digest. Also, just importantly, right? You're required to provide information that's material to a reasonable investor, so not any investor. And I think that's always important to keep in mind as well. There there can fairly be a limit as to what you're required to disclose but frankly, I think the market will always come to some uniformity. And I think particularly in municipals, we are always very conscious of the fact that they are not corporates, that their financials and their governance is all very different, unlike in the public reporting company space. So sort of requiring a uniform standard is a very different thing in the municipal market than required in the corporate market. And also just from experience, have seen folks kind of come to something that is relatively uniform that then starts to be accepted by the market.
Jamiyl Flemming (39:43):
Richard?
Richard Freund (39:43):
Yeah, I'll just try to be really brief and just say, I think in general what a reasonable investor that thinks about these issues wants to see is that you've thought about certain issues. And so I know we hear from debt managers all the time, well, wait, if I disclose with you, what if investors don't like what I'm saying because they're admitting to being exposed to flood risk, or I'm admitting to wildfire risk or something like that. And we always say, well, first of all, they already know that they're not stupid. They're aware of those risks, but what they want to see is have you thought about them and what are you doing about them? And so in general I mean, the answer to your question I think is yes, it's entirely possible. And at the heart of that, I think the task force on climate related financial disclosure is a very powerful and intentionally very vague tool that is there really to help people do that. And I think the goal is not, nobody's expecting perfection now, but just show me you've thought about it. Show me you've thought about it. Are you asking the question, are we exposed to these risks? And how are you, if you're finding the answers no, great. You've shown me you've thought about it, and I'll take you at your word. And if you have identified risks with anything else, show me what you're going to do to mitigate those.
Jamiyl Flemming (40:59):
And I'll say, just to that point, I think by and large, a lot of municipalities, they are thinking about these things but it's not always being disclosed. And I would say frankly, the folk that are in charge of that disclosure, often on the finance side, aren't necessarily always aware of what's happening behind the scenes or in other offices. On the City of Atlanta's transaction. For example, they had the Department of Parks and Rec, they had Department of Transportation, all of whom had different responsibilities and all of whom were addressing these things in their own way. But these initiatives weren't always centralized. So it forced Atlanta to create a bond link page that identified all these initiatives. They have a very specific ESG page on there now too. So I think sometimes municipalities, they, they're very daunted by this idea of having to say, oh my God, we have to address all these ideas. But by and large, they're already doing it. They're not always aware sometimes.
Karen Daly (41:57):
Unfortunately we're out of time. So I just would like to thank our panelists for a really great discussion and look forward to seeing you.