In recent weeks, the U.S. Securities and Exchange Commission ("SEC") has intensified its focus on environmental (including climate-related), social and governance ("ESG") disclosure, signaling the possibility that it may impose new disclosure requirements on public companies. Although municipal issuers and not-for-profit borrowers are not subject to the mandatory disclosure regime imposed on public companies, changes in SEC public company ESG disclosure mandates may have a ripple effect on municipal securities market disclosure. In the meantime, in response to heightened interest among municipal securities investors in ESG disclosure, on March 11, 2021, the Government Finance Officers Association ("GFOA") released its first best practice for ESG disclosure by municipal issuers.

This client update provides a brief overview of these recent developments regarding ESG disclosure and considerations for municipal securities issuers, conduit borrowers and their advisors, as well as underwriters of municipal securities.

SEC prioritization of climate and other ESG disclosure

The SEC has recently taken a more active stance on climate-related and other ESG disclosure by public companies. In a speech given on March 15, 2021 at the Center for American Progress, acting SEC Chair Allison Herren Lee emphasized that "climate and ESG are front and center for the SEC" and stated that, because "investors are demanding more and better information on climate and ESG, and that demand is not being met by the current voluntary framework," the SEC has "begun to take critical steps toward a comprehensive ESG disclosure framework."1 John Coates, the acting Director of the SEC's Division of Corporation Finance, remarked in a separate speech that the SEC "should help lead the creation of an effective ESG disclosure system so companies can provide investors with information they need in a cost effective manner."2

Key recent actions by the SEC relating to climate and other ESG disclosure by public companies include:

  • February 24, 2021 – Acting Chair Lee directed the Division of Corporation Finance to "enhance its focus on climate-related disclosure" and to update Climate Change Guidance from the SEC's interpretive release in 20103 on climate-related disclosure.4
  • March 3, 2021 – The SEC's Division of Examinations announced that its 2021 examination priorities include a focus on climate and other ESG-related risks, which would entail, among other things, reviewing firms' business continuity plans in connection with physical risks associated with climate change.5
  • March 4, 2021 – The SEC established a new, 22-member Climate and ESG Task Force in the Division of Enforcement to develop initiatives to identify ESG-related misconduct. The Task Force will initially focus on identifying material misstatements in issuers' disclosure of climate risks under the existing rules. It will also analyze disclosure and compliance issues relating to investment advisers' and funds' ESG strategies.6
  • March 15, 2021 – The SEC invited public input on the SEC's disclosure rules and guidance on climate change disclosures. Fifteen questions were posed for consideration and response over a 90-day comment period.7
  • March 19, 2021 – The Asset Management Advisory Committee held a panel discussion on the ESG Subcommittee's December 1, 2020 recommendations for ESG disclosure requirements.8 The ESG Subcommittee had recommended that the SEC: (1) require the adoption of standards by which corporate issuers disclose material ESG risks, (2) utilize standard setters' frameworks to require disclosure of material ESG risks, and (3) require that material ESG risks be disclosed in a manner consistent with the presentation of other financial disclosures.9
  • March 22, 2021 – The SEC launched a new web page on SEC responses relating to climate and other ESG issues.10

The SEC has not yet decided whether to impose new mandatory ESG disclosure rules on public companies or, if it does, what rules it should adopt. The Commissioners are not unified in their desire for change with the Republican Commissioners generally opposing a change. Some of the SEC Commissioners appear to be interested in the development of standardized disclosures specific to ESG as compared to the current system which does not include standardized disclosures but which still requires assessing the materiality of risks to a particular issuer as part of the general materiality rules applicable to all securities.11 However, in remarks to the SEC's Asset Management Advisory Committee, Republican Commissioner Hester Peirce indicated that "undermining" materiality by imposing broad ESG disclosure mandates "to accommodate ESG will harm investors."12 Republican Commissioner Elad Roisman expressed concern that, "[i]f the only people who feel safe to comment are those who want the agency to join the fight against climate change and those whose business models would benefit from new regulation, we will miss hearing from those voices who can alert us to the hidden costs and unintended consequences" of new disclosure regulations.13 These statements echo earlier concerns expressed by Commissioner Peirce and Commissioner Roisman that it may be "premature" for the Commission to undertake "to make major changes to longstanding practices" with respect to climate and ESG disclosure.14

GFOA best practice on ESG disclosure

On March 5, 2021, the GFOA's Executive Board adopted, and then released on March 11, 2021, its first-ever best practice focused on ESG disclosures by municipal issuers.15 The move was welcomed by credit analysts.16 The best practice concentrates primarily on environmental factors, though the GFOA notes that the strategies set forth in the best practice could also be applied to social and governance factors as well.

The GFOA best practice notes that municipal bonds are a vehicle for "impact investments." According to the GFOA, many investors want more information on the impact of their investments, and bond ratings and investor demand have "a significant bearing on the pricing of municipal bonds." The best practice concludes that it is generally in the best interest of municipal issuers to provide ESG disclosure in primary offering documents.

In summary, the best practice recommends that municipal issuers evaluate the development and disclosure of information regarding the primary environmental risks applicable to municipal issuers and their bonds in preliminary and final official statements used in their bond offerings and in other voluntary disclosure. Municipal issuers should also disclose plans developed, strategies deployed, actions taken, and infrastructure built to address environmental risks, noting that they will vary depending on the geographical location of the issuer.17 The GFOA advises that disclosure should not only supply information about environmental risks to the issuer (or the conduit borrower, if applicable), but also describe the municipal issuer's plans to address the risks.

To assist in preparing primary market disclosure, the GFOA offers a checklist of disclosure considerations:

(A) First, identify the primary environmental risks—discuss studies or analyses taken and identify primary risk factors; quantify or provide examples about recent experiences with the identified risks such as natural disasters, including considering how such risks affect operations and financial position; discuss how the studies or analyses are tracked over time; and describe processes and systems established to address the identified risks;

(B) Second, identify any policy actions taken—discuss policies adopted addressing the relevant environmental factors; quantify policy goals and progress towards implementation efforts; and discuss how the policies and goals are tracked over time;

(C) Third, summarize information for investors rather than link to detailed or voluminous materials;

(D) Fourth, include appropriate disclaimers or cautionary language to frame the discussion of risks and indicate that such risks are unpredictable or in some cases unknowable; and

(E) Fifth, review and refresh disclosure with each bond offering.

If a municipal issuer chooses to voluntarily release environmental disclosure to investors outside a primary offering, the GFOA recommends that it contemporaneously disseminate the information to the market as whole. The GFOA also recommends that, whether considering primary market or voluntary post-issuance environmental disclosure, municipal issuers should consult with bond counsel, disclosure counsel and municipal advisors.

Public finance implications

What does all of this activity suggest for municipal issuers?

The recent and possibly forthcoming SEC actions are unlikely to require changes in the disclosure practices of municipal issuers. The SEC is authorized to prescribe the content of registration statements, prospectuses, and periodic reports for registrants.18 Municipal securities offerings, however, are generally exempt from registration and, therefore, are exempt from the line item disclosure requirements imposed by the SEC on registrants.19 If and when municipal issuers are required to make ESG disclosures, that requirement results from the anti-fraud provisions of federal securities laws,20 which remain unaffected by any change in line item disclosure requirements.

Under the antifraud provisions, municipal issuers and conduit borrowers (as well as public companies) may not omit a material fact from their offering documents if doing so would mislead investors. A fact, including a fact that indicates risk (i.e., a "risk factor"), is material "if there is a substantial likelihood that a reasonable [investor] would consider it important," i.e., "if there is a substantial likelihood that the information would have been viewed by the reasonable investor as having significantly altered the total mix of information made available."21 When engaged in a primary offering, issuers need not disclose general conditions known to reasonable investors (e.g., that climates are warming), since doing so would not affect the total mix of information available to investors. They should disclose factors that are specific to them (e.g., that they have incurred flooding or fires with increasing frequency) as well as policy responses and material costs and operational challenges that are specific to them.22 The materiality of a specific factor may change over time as market interest in such information evolves.23

It is important for municipal issuers to realize that "ESG-related disclosure has become a priority for many investors, including in the municipal securities market," as observed recently by Rebecca Olsen, director of SEC Office of Municipal Securities.24 The public visibility of natural disasters such as the California wildfires and the recent ice storm in Texas have fueled interest in enhanced ESG disclosures among investors and rating analysts. As noted by the GFOA, if information is important to investors, it is generally in the best interests of issuers to address it in their disclosure documents when they engage in primary offerings. Furthermore, while SEC disclosure mandates do not apply to municipal securities issuers, municipal issuers and conduit borrowers can look to them for guidance as to what the SEC considers important to investors (and therefore its Division of Enforcement may believe is generally material to a reasonable investor).

For these reasons, even though any change in SEC disclosure requirements will almost certainly not apply to municipal issuers, municipal issuers and conduit borrowers should follow regulatory developments carefully, reassess their ESG disclosures as they do, and give consideration to any relevant SEC statements or actions and the GFOA best practice as they do.

Further information:

If you have further questions regarding the implications of the SEC’s recent activity on climate-related and other ESG disclosure or the GFOA’s Best Practice on ESG Disclosure, please contact Mary Kimura, Fredric (Rick) Weber, Dave Sanchez or your customary Norton Rose Fulbright lawyer or lawyers.


1   "A Climate for Change: Meeting Investor Demand for Climate and ESG Information at the SEC" (March 15, 2021), available at

2   "ESG Disclosure – Keeping Pace with Developments Affecting Investors, Public Companies and the Capital Markets" (March 11, 2021), available at

3   Commission Guidance Regarding Disclosure Related to Climate Change, Release Nos. 33-9106; 34-61469; FR-82 (effective February 8, 2010).

4   See "Statement on the Review of Climate-Related Disclosure" (February 24, 2021), available at The SEC also announced early in February that Satyam Khanna would serve as Senior Policy Advisor for climate and ESG in the office of Acting Chair Allison Herren Lee to advise on environmental, social and governance matters. "Satyam Khanna Named Senior Policy Advisor for Climate and ESG" (February 1, 2021), available at

5   See "SEC Division of Examinations Announces 2021 Examination Priorities – Enhanced Focus on Climate-Related Risks" (March 3, 2021), available at

6   See "SEC Announces Enforcement Task Force Focused on Climate and ESG Issues" (March 4, 2021), available at

7   See "Public Input Welcomed on Climate Change Disclosures" (March 15, 2021), available at For a discussion of noteworthy areas targeted for focus by the request for comments, see "SEC makes clear an ESG disclosure framework is coming and opens comment period on potential climate change disclosures" (March 2021), available at

8   See "SEC Issues Agenda for March 19 Meeting of the Asset Management Advisory Committee" (March 17, 2021, available at

9   See "Potential Recommendations of ESG Subcommittee" (December 1, 2020), available at

10   The web page is located at See also "SEC Responds to Investor Demand by Bringing Together Agency Information About Climate and ESG Issues" (March 22, 2021), available at

11   See "SEC poised to prioritize ESG-related disclosures under Biden administration" (February 10, 2021), available at

12   "Remarks at Asset Management Advisory Committee Meeting" (March 19, 2021), available at

13   "An Honest Conversation about ESG Regulation" (March 19, 2021), available at

14   "Enhancing Focus on the SEC's Enhanced Climate Change Efforts" (March 4, 2021), available at

15   "ESG Disclosure" available at Although outside of the scope of this alert, the GFOA at the same time issued an Advisory on LIBOR Transition and Advisory on In-Kind Asset Transfers to Defined Benefit Pension Plans.

16   See "GFOA releases its first ESG best practice as momentum gains for more disclosure" (March 11, 2021), available at

17   "ESG Disclosure" available at

18   Securities Act of 1933, §§ 7(a)(1), 10(c); Securities Exchange Act of 1934, § 13(a).

19   Securities Act of 1933, § 3(a)(2).

20   Securities Act of 1933, § 17(a); Securities Exchange Act of 1934, § 10(b).

21   See Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27, 131 S.Ct. 1309, 179 L.Ed.2d 398 (2011); Basic Inc. v. Levinson, 485 U.S. 224, 108 S.Ct. 978, 99 L.Ed.2d 194 (1988); TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438, 96 S.Ct. 2126, 48 L.Ed.2d 757 (1976).

22   As noted by John Coates, Acting Director, Division of Corporate Finance, "companies generally are mandated to make disclosures as needed to prevent other disclosures from being materially misleading. As companies continue to disclose more in sustainability reports, they should already be evaluating them in light of existing anti-fraud obligations." "ESG Disclosure – Keeping Pace with Developments Affecting Investors, Public Companies and the Capital Markets" (March 11, 2021), available at

23   In remarks delivered at the 18th Annual Institute on Securities Regulation in Europe on March 15, 2019, William Hinman, Former Director, Division of Corporation Finance, observed that the "the market is still evaluating what, if any, additional disclosure" with respect to sustainability or ESG issues "would provide consistently material and useful information. The marketplace evolution of sustainability disclosures is ongoing – companies certainly provide more sustainability information than they did ten years ago – and allowing this evolution to continue should provide market participants with a continued opportunity to sort out the types of information they find useful." See "Applying a Principles-Based Approach to Disclosing Complex, Uncertain and Evolving Risks" (March 15, 2019), available at

24   See "GFOA releases its first ESG best practice as momentum gains for more disclosure" (March 11, 2021), available at


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