Climate Risk Scorecard
Notable Progress
Some Progress
No Progress
Not Applicable
Municipal Securities Rulemaking Board
Some Progress
Reasoning
For more information about our key findings and learnings, please download the 2024 Climate Risk Scorecard report.
Some Progress
Reasoning
For more information about our key findings and learnings, please download the 2024 Climate Risk Scorecard report.
Methodology
We assessed the extent to which the agency has expanded and established sustainable, well-resourced capacity “to define, identify, measure, monitor, assess, and report on climate-related financial risks and their effects on financial stability.” (FSOC 1.3).
This includes investments in staffing, appointing senior staff, forming internal working groups and/or committees, staff training, investments in technological and analytical capabilities, and financial resources provided to staff working on these issues.
Some Progress
Reasoning
For more information about our key findings and learnings, please download the 2024 Climate Risk Scorecard report.
Methodology
We assessed the extent to which the agencies have made information and data available to the public.
“[I]nclude descriptions of their activities related to climate-related financial risks in their annual reports and consider incorporating climate-related financial risks in relevant risk reports that they publish, as appropriate ... [and] within the context of each member’s mandate and authority.” (FSOC 1.4).
“[M]ake climate-related data for which they are the custodians freely available to the public, as appropriate and subject to any applicable data confidentiality requirements.” (FSOC 1.5).
Not Applicable
Reasoning
For more information about our key findings and learnings, please download the 2024 Climate Risk Scorecard report.
Methodology
We assessed the extent to which the agency - consistent with its mandate and authorities and its membership in the Financial Literacy and Education Commission (FLEC) - has assessed and made progress on addressing climate risks to financially vulnerable communities.
“[C]oordinate the analyses of climate-related financial risks ... with their efforts to understand impacts on communities and households. FSOC members should, as applicable, integrate these analyses into the[ir annual] public reports.” (FSOC 1.6).
“[E]valuate climate-related impacts and the impacts of proposed policy solutions on financially vulnerable populations when assessing the impact of climate change on the economy and the financial system.” (FSOC 1.8). 
“[FLEC members should] analyze and understand the impact of climate change on the financial well-being of financially vulnerable populations. FSOC members that are also FLEC members should actively participate in this analysis.” FLEC members include the Fed, OCC, FDIC, NCUA, SEC, CFTC, and FHFA. (FSOC 1.9). 
Some Progress
Reasoning
For more information about our key findings and learnings, please download the 2024 Climate Risk Scorecard report.
Methodology
We assessed the extent to which the agencies have advanced research and data collection on climate risk.
“Identify[] the data needed to evaluate the climate-related financial risk exposures of regulated entities and financial markets.” (FSOC 2.1).  
“Perform[] an internal inventory of currently collected and procured data and its relevance for climate risk assessments." (FSOC 2.1).  
“Develop[] a plan for procuring necessary data through data collection, data sharing arrangements and information purchased from data providers or other sources.” (FSOC 2.1).  
“[F]acilitate the sharing of climate-related data across FSOC members and non-FSOC member agencies to assess climate-related financial risk, consistent with data confidentiality requirements.” (FSOC 2.2)
“[D]evelop consistent data standards, definitions, and relevant metrics ... to facilitate common definitions of climate-related data terms, sharing of data, and analysis and aggregation of data.” (FSOC 2.5)
Not Applicable
Reasoning
For more information about our key findings and learnings, please download the 2024 Climate Risk Scorecard report.
Methodology
We assessed the extent to which the agencies have begun to assess, develop, and conduct climate scenario analyses at their supervised entities.
“[C]ollaborate with external experts to identify climate forecasts, scenarios, and other tools necessary to better understand the exposure of regulated entities to climate-related risks and how those risks translate into economic and financial impacts.” (FSOC 4.1).
“[U]se scenario analysis, where appropriate, as a tool for assessing climate-related financial risks, taking into account their supervisory and regulatory mandates and the size, complexity, and activities of regulated entities.” (FSOC 4.3).
“[C]onsider using common scenarios that build on existing work, including scenarios developed by NGFS and work at the FSB, as appropriate for the institutions and markets under consideration.” (FSOC 4.4).
Some Progress
Reasoning
For more information about our key findings and learnings, please download the 2024 Climate Risk Scorecard report.
Methodology
We assessed the extent to which the agency has enhanced public reporting requirements for their regulated entities. The market is currently mispricing climate risk. The lack of consistent disclosure by entities supervised by U.S. financial regulators is an obstacle to market efficiency and to the accurate pricing of climate risk.
“[R]eview their existing public disclosure requirements and consider, as appropriate, updating them to promote the consistency, comparability, and decision-usefulness of information on climate-related risks and opportunities.” (FSOC 3.1).
“[C]onsider enhancing public reporting requirements for climate related risks in a manner that builds on the four core elements of the TCFD.” (FSOC 3.2).
“[C]onsider whether such disclosures should include disclosure of GHG emissions.” (FSOC 3.4).
“[R]eview banks’ public regulatory reporting requirements to assess whether enhancements are needed to provide market participants with information on institutions’ climate-related financial risks, taking into account a bank’s size, complexity, and activities.” (FSOC 3.7).
Some Progress
Reasoning
For more information about our key findings and learnings, please download the 2024 Climate Risk Scorecard report.
Methodology
We assessed the extent to which the agencies have enhanced supervisory scrutiny of climate risk management at their supervised entities to ensure their resilience and the resilience of our financial system.
“[C]larif[y] or enhanced risk management expectations ... [and] guidance.” (FSOC 4.8).
“[R]eview[] regulated entities’ efforts to address climate-related risks." (FSOC 4.6).
“[R]eview[] existing ... guidance ... to identify where clarifications and enhancements are needed.” (FSOC 4.7).
No Progress
Reasoning
For more information about our key findings and learnings, please download the 2024 Climate Risk Scorecard report.
Methodology
We assessed the extent to which the agencies have incorporated climate risk management expectations into their regulatory requirements for supervised entities to ensure their resilience and the resilience of our financial system.
“[C]larif[y] or enhanced risk management ... requirements.” (FSOC 4.8).
“[R]eview[] existing regulations ... and regulatory reporting to identify where clarifications and enhancements are needed.” (FSOC 4.7).
Some Progress
Reasoning
For more information about our key findings and learnings, please download the 2024 Climate Risk Scorecard report.
Some Progress
Reasoning
For more information about our key findings and learnings, please download the 2024 Climate Risk Scorecard report.
Methodology
We assessed the extent to which the agency has expanded and established sustainable, well-resourced capacity “to define, identify, measure, monitor, assess, and report on climate-related financial risks and their effects on financial stability.” (FSOC 1.3).
This includes investments in staffing, appointing senior staff, forming internal working groups and/or committees, staff training, investments in technological and analytical capabilities, and financial resources provided to staff working on these issues.
Some Progress
Reasoning
For more information about our key findings and learnings, please download the 2024 Climate Risk Scorecard report.
Methodology
We assessed the extent to which the agencies have made information and data available to the public.
“[I]nclude descriptions of their activities related to climate-related financial risks in their annual reports and consider incorporating climate-related financial risks in relevant risk reports that they publish, as appropriate ... [and] within the context of each member’s mandate and authority.” (FSOC 1.4).
“[M]ake climate-related data for which they are the custodians freely available to the public, as appropriate and subject to any applicable data confidentiality requirements.” (FSOC 1.5).
Not Applicable
Reasoning
For more information about our key findings and learnings, please download the 2024 Climate Risk Scorecard report.
Methodology
We assessed the extent to which the agency - consistent with its mandate and authorities and its membership in the Financial Literacy and Education Commission (FLEC) - has assessed and made progress on addressing climate risks to financially vulnerable communities.
“[C]oordinate the analyses of climate-related financial risks ... with their efforts to understand impacts on communities and households. FSOC members should, as applicable, integrate these analyses into the[ir annual] public reports.” (FSOC 1.6).
“[E]valuate climate-related impacts and the impacts of proposed policy solutions on financially vulnerable populations when assessing the impact of climate change on the economy and the financial system.” (FSOC 1.8). 
“[FLEC members should] analyze and understand the impact of climate change on the financial well-being of financially vulnerable populations. FSOC members that are also FLEC members should actively participate in this analysis.” FLEC members include the Fed, OCC, FDIC, NCUA, SEC, CFTC, and FHFA. (FSOC 1.9). 
Some Progress
Reasoning
For more information about our key findings and learnings, please download the 2024 Climate Risk Scorecard report.
Methodology
We assessed the extent to which the agencies have advanced research and data collection on climate risk.
“Identify[] the data needed to evaluate the climate-related financial risk exposures of regulated entities and financial markets.” (FSOC 2.1).  
“Perform[] an internal inventory of currently collected and procured data and its relevance for climate risk assessments." (FSOC 2.1).  
“Develop[] a plan for procuring necessary data through data collection, data sharing arrangements and information purchased from data providers or other sources.” (FSOC 2.1).  
“[F]acilitate the sharing of climate-related data across FSOC members and non-FSOC member agencies to assess climate-related financial risk, consistent with data confidentiality requirements.” (FSOC 2.2)
“[D]evelop consistent data standards, definitions, and relevant metrics ... to facilitate common definitions of climate-related data terms, sharing of data, and analysis and aggregation of data.” (FSOC 2.5)
Not Applicable
Reasoning
For more information about our key findings and learnings, please download the 2024 Climate Risk Scorecard report.
Methodology
We assessed the extent to which the agencies have begun to assess, develop, and conduct climate scenario analyses at their supervised entities.
“[C]ollaborate with external experts to identify climate forecasts, scenarios, and other tools necessary to better understand the exposure of regulated entities to climate-related risks and how those risks translate into economic and financial impacts.” (FSOC 4.1).
“[U]se scenario analysis, where appropriate, as a tool for assessing climate-related financial risks, taking into account their supervisory and regulatory mandates and the size, complexity, and activities of regulated entities.” (FSOC 4.3).
“[C]onsider using common scenarios that build on existing work, including scenarios developed by NGFS and work at the FSB, as appropriate for the institutions and markets under consideration.” (FSOC 4.4).
Some Progress
Reasoning
For more information about our key findings and learnings, please download the 2024 Climate Risk Scorecard report.
Methodology
We assessed the extent to which the agency has enhanced public reporting requirements for their regulated entities. The market is currently mispricing climate risk. The lack of consistent disclosure by entities supervised by U.S. financial regulators is an obstacle to market efficiency and to the accurate pricing of climate risk.
“[R]eview their existing public disclosure requirements and consider, as appropriate, updating them to promote the consistency, comparability, and decision-usefulness of information on climate-related risks and opportunities.” (FSOC 3.1).
“[C]onsider enhancing public reporting requirements for climate related risks in a manner that builds on the four core elements of the TCFD.” (FSOC 3.2).
“[C]onsider whether such disclosures should include disclosure of GHG emissions.” (FSOC 3.4).
“[R]eview banks’ public regulatory reporting requirements to assess whether enhancements are needed to provide market participants with information on institutions’ climate-related financial risks, taking into account a bank’s size, complexity, and activities.” (FSOC 3.7).
Some Progress
Reasoning
For more information about our key findings and learnings, please download the 2024 Climate Risk Scorecard report.
Methodology
We assessed the extent to which the agencies have enhanced supervisory scrutiny of climate risk management at their supervised entities to ensure their resilience and the resilience of our financial system.
“[C]larif[y] or enhanced risk management expectations ... [and] guidance.” (FSOC 4.8).
“[R]eview[] regulated entities’ efforts to address climate-related risks." (FSOC 4.6).
“[R]eview[] existing ... guidance ... to identify where clarifications and enhancements are needed.” (FSOC 4.7).
No Progress
Reasoning
For more information about our key findings and learnings, please download the 2024 Climate Risk Scorecard report.
Methodology
We assessed the extent to which the agencies have incorporated climate risk management expectations into their regulatory requirements for supervised entities to ensure their resilience and the resilience of our financial system.
“[C]larif[y] or enhanced risk management ... requirements.” (FSOC 4.8).
“[R]eview[] existing regulations ... and regulatory reporting to identify where clarifications and enhancements are needed.” (FSOC 4.7).
Notable Progress
Reasoning
MSRB CEO Mark Kim has previously confirmed climate as systemic risk as noted in last year’s scorecard, but neither Mr. Kim nor the MSRB has made public comments on or included climate risk in agency publications since that time.
Next Steps
Publicly acknowledge, through official statements and agency publications, the systemic nature of climate risk and the implications of that risk to the U.S. municipal bond market.
*These recommendations, all within the MSRB’s mandate and authority, are designed to address climate-related financial risks and protect our municipal bond markets and financial system.
Methodology
We assessed the extent to which the agency has publicly affirmed the systemic nature of the climate crisis individually in official agency communications (outside of the FSOC report).
Some Progress
Reasoning
The MSRB established an internal ESG working group, which includes several senior staff members including the chiefs of the MSRB’s Market Regulation and Market Structure departments. The MSRB notes that the working group continues to monitor developments related to climate risk, evolving market practices, and potential ESG-related regulatory compliance challenges in the municipal securities market, and serves as a test group for potential EMMA enhancements. This group was also tasked with reviewing comments to the ESG Practices in the Municipal Securities Markets RFI, although it is unclear how the MSRB is supporting staff training.
Next Steps
Provide training, education, and resources to staff assigned to the internal working groups and/or committees to enable them to better identify, monitor, and report on climate-related risks to the auditing profession.
Invest in technological and analytical capabilities and financial resources that support staff on the internal working groups and/or committees.
*These recommendations, all within the MSRB’s mandate and authority, are designed to address climate-related financial risks and protect our municipal bond markets and financial system.
Methodology
We assessed the extent to which the agency has expanded and established sustainable, well-resourced capacity “to define, identify, measure, monitor, assess, and report on climate-related financial risks and their effects on financial stability.” (FSOC 1.3).
This includes investments in staffing, appointing senior staff, forming internal working groups and/or committees, staff training, investments in technological and analytical capabilities, and financial resources provided to staff working on these issues.
Some Progress
Reasoning
In August 2022, the MSRB released a summary of responses to that RFI. Although it concluded that it would “continue to monitor and engage with the broader market on understanding emerging ESG practices and their implications for market fairness, efficiency, and transparency,” the MSRB has not yet indicated what if any actions it is taking or will take to increase consistent, comparable disclosure of ESG- and climate-related risks and information.
The MSRB also has a dedicated webpage for information related to ESG investing and disclosure, although it has not indicated what actions beyond the 2021 RFI it is taking on these issues.
Next Steps
Establish a designated page on its website or update its ESG investing page to provide updates on completed and ongoing climate risk-related activities, announce other staff assigned to work on these issues, describe what the ESG working group is researching, disclose budgets and resources, and other recommendations in this section.
*These recommendations, all within the MSRB’s mandate and authority, are designed to address climate-related financial risks and protect our municipal bond markets and financial system.
Methodology
We assessed the extent to which the agencies have made information and data available to the public.
“[I]nclude descriptions of their activities related to climate-related financial risks in their annual reports and consider incorporating climate-related financial risks in relevant risk reports that they publish, as appropriate ... [and] within the context of each member’s mandate and authority.” (FSOC 1.4).
“[M]ake climate-related data for which they are the custodians freely available to the public, as appropriate and subject to any applicable data confidentiality requirements.” (FSOC 1.5).
Not Applicable
Reasoning
This assessment category is not within the MSRB’s mandate or authority.
Methodology
We assessed the extent to which the agency - consistent with its mandate and authorities and its membership in the Financial Literacy and Education Commission (FLEC) - has assessed and made progress on addressing climate risks to financially vulnerable communities.
“[C]oordinate the analyses of climate-related financial risks ... with their efforts to understand impacts on communities and households. FSOC members should, as applicable, integrate these analyses into the[ir annual] public reports.” (FSOC 1.6).
“[E]valuate climate-related impacts and the impacts of proposed policy solutions on financially vulnerable populations when assessing the impact of climate change on the economy and the financial system.” (FSOC 1.8). 
“[FLEC members should] analyze and understand the impact of climate change on the financial well-being of financially vulnerable populations. FSOC members that are also FLEC members should actively participate in this analysis.” FLEC members include the Fed, OCC, FDIC, NCUA, SEC, CFTC, and FHFA. (FSOC 1.9). 
Some Progress
Reasoning
In December 2021, the MSRB issued an RFI on ESG Practices in the Municipal Securities Markets. It held a discussion of its comment review at an April 2022 board meeting, and released a summary of responses in August 2022.
In June 2022, the MSRB announced Lourdes Germán of the Harvard University School of Design and the Public Finance Initiative as the agency’s next visiting scholar. In her time with the Visiting Scholar Program, Ms. Germán used MSRB data and technical support to research trends in the disclosure of ESG-related information, including climate risk, in the municipal securities market. She is now studying the impact of ESG labels on pricing trends and is finalizing a working paper on her research. However, this research has not yet been made public, and there does not appear to be a plan in place to gather additional market data or explore uniform standards for uniformity and transparency.
Next Steps
Conduct research and educate municipal issuers, investors, and other stakeholders about climate-related physical and transition risks.
Examine the quality of climate-related disclosures in the Official Statements and Continuing Disclosures Agreements of municipal bonds to determine whether disclosure is adequate for market participants to assess underlying climate risks.
Collaborate with the Treasury’s Office of Financial Research, the Fed’s Research Division, and other peer agencies to identify and curate reliable and relevant data sources for municipal issuers to use in their disclosure.
Add a section to its website with access to climate risk data and research from both the MSRB and leading independent think tanks or research universities.
Research how risks facing municipalities differ from risks facing issuers, and explore options to enhance disclosure on these issues.
*These recommendations, all within the MSRB’s mandate and authority, are designed to address climate-related financial risks and protect our municipal bond markets and financial system.
Methodology
We assessed the extent to which the agencies have advanced research and data collection on climate risk.
“Identify[] the data needed to evaluate the climate-related financial risk exposures of regulated entities and financial markets.” (FSOC 2.1).  
“Perform[] an internal inventory of currently collected and procured data and its relevance for climate risk assessments." (FSOC 2.1).  
“Develop[] a plan for procuring necessary data through data collection, data sharing arrangements and information purchased from data providers or other sources.” (FSOC 2.1).  
“[F]acilitate the sharing of climate-related data across FSOC members and non-FSOC member agencies to assess climate-related financial risk, consistent with data confidentiality requirements.” (FSOC 2.2)
“[D]evelop consistent data standards, definitions, and relevant metrics ... to facilitate common definitions of climate-related data terms, sharing of data, and analysis and aggregation of data.” (FSOC 2.5)
Some Progress
Reasoning
As noted in last year’s scorecard, in October 2021 the MSRB updated its data and disclosure platform EMMA to include indicators that allow investors to see if bond issuances include ESG-related criteria, and whether that issuance is designated as Green, Climate, Social, or Sustainable. The update also included a new ESG Certifier field that shows whether an issuance has been certified by one of several verifiers that assess the issuance for adherence to ESG criteria. The same month the EMMA update was launched, the MSRB published a blog on ESG investing and municipal bonds. The agency plans to integrate a natural language keyword search, currently in development on the EMMA Labs innovation platform, to assist investors with locating available climate risk and other information within unstructured data disclosures on EMMA.
In its 2021 ESG RFI, the MSRB noted that “disclosure documents used by municipal issuers already must include any material ESG-related information required under existing disclosure standards” and that “market participants are seeking ESG-related information beyond” what is currently disclosed. However, its August 2022 summary of responses is brief and does not provide any substantial analysis of the approximately 50 comments the agency received. The MSRB has also not indicated what if any actions it will take to increase consistent, comparable disclosure of ESG- and climate-related risks and information.
The MSRB also sent a letter in response to the SEC Office of the Investor Advocate’s 2022 RFI on products and practices that may pose risks to individual investors in the municipal securities market, which included ESG as one of six issues raised. However, the agency does not discuss the quality or adequacy specific to those disclosures or what concrete steps it will take beyond “continu[ing] to monitor and engage with stakeholders.”
Next Steps
Recommend that municipal issuers adopt the Task Force on Climate-Related Financial Disclosures (TCFD) disclosure framework in order to provide investors and stakeholders with timely, decision-useful climate-relevant information.
Further update EMMA to facilitate timely, machine-readable disclosure of climate risk and ESG factors and allow keyword searches.
*These recommendations, all within the MSRB’s mandate and authority, are designed to address climate-related financial risks and protect our municipal bond markets and financial system.
Methodology
We assessed the extent to which the agency has enhanced public reporting requirements for their regulated entities. The market is currently mispricing climate risk. The lack of consistent disclosure by entities supervised by U.S. financial regulators is an obstacle to market efficiency and to the accurate pricing of climate risk.
“[R]eview their existing public disclosure requirements and consider, as appropriate, updating them to promote the consistency, comparability, and decision-usefulness of information on climate-related risks and opportunities.” (FSOC 3.1).
“[C]onsider enhancing public reporting requirements for climate related risks in a manner that builds on the four core elements of the TCFD.” (FSOC 3.2).
“[C]onsider whether such disclosures should include disclosure of GHG emissions.” (FSOC 3.4).
“[R]eview banks’ public regulatory reporting requirements to assess whether enhancements are needed to provide market participants with information on institutions’ climate-related financial risks, taking into account a bank’s size, complexity, and activities.” (FSOC 3.7).
Some Progress
Reasoning
In December 2021, the MSRB issued an RFI on ESG Practices in the Municipal Securities Markets, and released a summary of responses in August 2022. Although the summary concluded that the agency would “continue to monitor and engage with the broader market on understanding emerging ESG practices and their implications for market fairness, efficiency, and transparency,” and it is important to note the role and jurisdiction of the MSRB is limited, the MSRB has not yet indicated what if any guidance or compliance resources it will issue to increase consistent, comparable disclosure of ESG- and climate-related risks and information.
Next Steps
Encourage all U.S. municipal bond market stakeholders, such as bond counsel, data vendors, valuation services, bond insurers, municipal advisors, and especially rating agencies and other standard setters, to fully incorporate climate risk management into their internal processes.
Update the Municipal Securities Exams (for example the Series 52 and Series 53 exams) to test for climate risk management competency.
Enhance board governance and senior management expertise as it pertains to climate risk and create a board level standing committee on municipal bond market climate risk management.
Issue a public statement recommending key stakeholders improve disclosure (including municipalities, municipal advisers, and banks) if disclosure is found to be deficient for market participants to assess any underlying climate risk exposure.
*These recommendations, all within the MSRB’s mandate and authority, are designed to address climate-related financial risks and protect our municipal bond markets and financial system.
Methodology
We assessed the extent to which the agencies have enhanced supervisory scrutiny of climate risk management at their supervised entities to ensure their resilience and the resilience of our financial system.
“[C]larif[y] or enhanced risk management expectations ... [and] guidance.” (FSOC 4.8).
“[R]eview[] regulated entities’ efforts to address climate-related risks." (FSOC 4.6).
“[R]eview[] existing ... guidance ... to identify where clarifications and enhancements are needed.” (FSOC 4.7).
No Progress
Reasoning
While it is important to note the role and jurisdiction of the MSRB is limited and regulatory action must be approved by the SEC, Ceres is not aware of any progress in this category.
Next Steps
Given the MSRB’s limited mandate, work with the SEC to update regulations to require more extensive disclosures on the material climate risks of municipal bonds as well as the efforts by municipal issuers to mitigate these risk.
Given the MSRB’s limited mandate, work with the SEC to update regulations to require that all offering statements for municipal bonds be filed in a singular, machine-readable format so that analysts do not have to pull climate risks by hand from these disclosure documents.
*These recommendations, all within the MSRB’s mandate and authority, are designed to address climate-related financial risks and protect our municipal bond markets and financial system.
Methodology
We assessed the extent to which the agencies have incorporated climate risk management expectations into their regulatory requirements for supervised entities to ensure their resilience and the resilience of our financial system.
“[C]larif[y] or enhanced risk management ... requirements.” (FSOC 4.8).
“[R]eview[] existing regulations ... and regulatory reporting to identify where clarifications and enhancements are needed.” (FSOC 4.7).
Not Applicable
Reasoning
This assessment category is not within the MSRB’s mandate or authority.
Methodology
We assessed the extent to which the agencies have begun to assess, develop, and conduct climate scenario analyses at their supervised entities.
“[C]ollaborate with external experts to identify climate forecasts, scenarios, and other tools necessary to better understand the exposure of regulated entities to climate-related risks and how those risks translate into economic and financial impacts.” (FSOC 4.1).
“[U]se scenario analysis, where appropriate, as a tool for assessing climate-related financial risks, taking into account their supervisory and regulatory mandates and the size, complexity, and activities of regulated entities.” (FSOC 4.3).
“[C]onsider using common scenarios that build on existing work, including scenarios developed by NGFS and work at the FSB, as appropriate for the institutions and markets under consideration.” (FSOC 4.4).
Notable Progress
Reasoning
MSRB CEO Mark Kim joined Ceres and other market stakeholders for a webinar on The Changing Climate for Municipal Securities in January 2022. During the webinar, Mr. Kim indicated that “climate change is real” and that “it is established securities law that any climate risks that are material must be disclosed. The MSRB’s focus with respect to climate risk is on market transparency and ensuring that investors in this market have the information that they need to make informed investment decisions. But investors are not the only ones that benefit from greater transparency around climate risks. Issuers also benefit when they can see how other state and local governments across the country are tackling some of the same challenges that they are facing at home.”
Next Steps
Publicly acknowledge that climate change poses a systemic risk to the U.S. municipal bond market.
*These recommendations, all within the MSRB’s mandate and authority, are designed to address climate-related financial risks and protect our municipal bond markets and financial system.
Methodology
Recognizing that climate change poses a financial stability risk is a critical first step for all financial regulators and will send an important message to all financial market stakeholders. Such statements are particularly important, given the complex nature of climate risks and continuing ambiguities about the extent to which the issue falls under specific agency mandates.
We assessed the extent to which the agency has publicly affirmed the systemic nature of the climate crisis individually in official agency communications outside of the FSOC report.
Some Progress
Reasoning
In December 2021, the MSRB issued a request for information (RFI) to “solicit public input on environmental, social and governance (ESG) practices in the municipal securities market.” The RFI notes that “[a]n example of an ESG-related risk factor might be a municipal entity or conduit borrower’s…exposure to the physical effects of climate change, such as the impacts of changing weather patterns, storm intensity, sea-levels and frequencies of extreme weather events.” As another example of its effort to produce research and data, the MSRB links to the SEC’s Guidance Regarding Disclosure Related to Climate Change, explaining that it is an “SEC interpretive release providing guidance to public companies as to how existing securities disclosure requirements apply to climate change matters.” MSRB CEO Kim made climate data requests to the Government Finance Officers Association in an October 2021 speech, saying “we are interested in whether you are providing the market with climate risk and other types of E, S and G disclosures and, if so, to share examples of such disclosures with us” and “separate topic, but we are also interested in whether you have self-labeled your bonds green, climate, social or sustainable and, if so, the reasons why you decided to market them as such and what standards you used to determine that they qualify to be labeled as that type of a bond.”
MSRB personnel has indicated to Ceres that “it is appropriate for them to engage with market participants and to better understand how ESG factors and climate risks are being integrated in the municipal market, and as such, their RFI sets the stage for ongoing discussion with key stakeholders and other interested parties about how to develop market-based solutions and best practices for climate-related disclosures in the municipal securities market.”
MSRB personnel has relayed to Ceres that the “RFI demonstrates their public commitment to advancing the understanding of how climate risks may impact the municipal securities market,” and that they received and are reviewing over 50 other responses including Ceres’ letter.
In its summary of a recent board meeting, the MSRB Board announced that “plans to prepare and publish a summary of the diverse comments received on its request for information on ESG practices in the municipal market. The MSRB also plans to host a series of virtual town halls to further explore the various themes raised by commenters. MSRB Vice Chair Meredith Hathorn included a statement in the announcement, saying “As the Board continues to synthesize the wealth of information provided, we have many threads to pull, including specific suggestions to enhance the EMMA website. We look forward to continuing to provide forums to bring different viewpoints together for more dialogue.”
Ceres submitted a response to the MSRB’s 2020 Request for Input on Strategic Goals and Priorities and included nine recommendations related to assessing climate risks. In 2021, MSRB published a new strategic plan for the next four years, but unfortunately failed to explicitly address climate risks in its plan.
Next Steps
Conduct research and educate municipal issuers, investors, and other stakeholders about climate-related physical and transition risks.
*These recommendations, all within the MSRB’s mandate and authority, are designed to address climate-related financial risks and protect our municipal bond markets and financial system.
Methodology
Producing quality research and data is critical to assessing and addressing climate-related financial risks. As stated in the FSOC report, “Analyzing climate-related financial risks begins with measuring and assessing risks from climate impacts. To do this, data is needed that captures the drivers of physical and transition risks that could impact households, businesses, the economy, and the financial sector (page 48).” We incorporated this new category in the 2022 Scorecard to respond to these critical data gaps.
We assessed the extent to which the agency has advanced work to make progress on FSOC Recommendation 2.1:
“Identif[y] the data needed to evaluate the climate-related financial risk exposures of regulated entities and financial markets within the context of each FSOC member’s mandate and authorities;
Perfor[m] an internal inventory of currently collected and procured data and its relevance for climate risk assessments; and
Develo[p] a plan for procuring necessary data through data collection, data sharing arrangements and information purchased from data providers or other sources.”
Not Applicable
Reasoning
Given the MSRB’s mission and authorities and that the MSRB is not a member of the Financial Literacy and Education Commission, which is a part of the FSOC recommendation criteria for assessment of category 3 “Assess climate risks on financially vulnerable communities,” the agency will not be assessed in this category and will instead be assigned “not applicable.”
Methodology
The FSOC report highlights the imperative to assess climate risks on “financially vulnerable communities,” given that “climate change disproportionately affects financially vulnerable populations potentially including lower-income communities, communities of color, Native American communities, and other disadvantaged or underserved communities.” This troubling reality is further compounded by the fact that vulnerable communities are “less likely to have the resources to protect and guard against damage to their properties or adequately deal with loss of income from an adverse climate or weather event (page 22).” While the significance of this issue is emphasized, it is qualified by an important warning against measures or actions that may unintentionally worsen existing inequalities.
We assessed the extent to which each agency, consistent with its mandate, authorities, and its membership in the Financial Literacy and Education Commission (FLEC), has advanced work to make progress on FSOC Recommendations 1.8 and 1.9:
“members, consistent with their mandates and authorities, evaluate climate-related impacts and the impacts of proposed policy solutions on financially vulnerable populations when assessing the impact of climate change on the economy and the financial system.” (FSOC 1.8)
“Treasury Department engage other members of the Financial Literacy and Education Commission (FLEC) to analyze and understand the impact of climate change on the financial well-being of financially vulnerable populations. FSOC members that are also FLEC members should actively participate in this analysis.” (FSOC 1.9).
FLEC members include the Office of the Comptroller of the Currency, Federal Reserve, the Federal Deposit Insurance Corporation, National Credit Union Administration, Securities and Exchange Commission, Commodity Futures Trading Commission.
Some Progress
Reasoning
The MSRB has established an internal ESG working group, which includes several senior staff members including the chiefs of the MSRB’s Market Regulation and Market Structure departments. This group is currently reviewing RFI comments received and synthesizing the information received. The MSRB Board is also engaged in the results of the ESG RFI, and included a discussion of the review of comments received at its April 2022 MSRB Board Meeting.
While the MSRB has dedicated internal staff from across the organization and at higher levels of the organization, unlike other agencies, it does not have a senior staff role dedicated at least partially to climate. Examples from other agencies include the SEC climate counsel in the chair’s office, the Federal Reserve Board of Governors’ chair of the Fed’s Supervision Climate Committee leading the micro prudential supervision of climate financial risks, and the OCC Climate Change Risk Officer.
Methodology
It is urgent that agencies establish sustainable, well-resourced capacity at the political and technical levels to address climate risk to meet the scale of the challenge and deliver on the administration and FSOC commitments.
We assessed the extent to which the agency has appointed dedicated staff to address climate risk to execute the agency’s climate commitments and FSOC recommendations. We assess, for example, the role, authority, and human and financial resources provided to staff dedicated to work on climate risk.
Some Progress
Reasoning
The role and jurisdiction of the MSRB is described as being limited: “The MSRB, while not a government entity, is nonetheless under the oversight of Congress and the Securities and Exchange Commission (SEC), and its rules generally must be approved by the SEC before becoming effective.” Any regulatory actions taken or proposed by the MSRB must be consistent with its statutory jurisdiction and, according to MSRB personnel, “Congress explicitly prohibits the MSRB from imposing climate risk disclosure requirements or standards on state and local government issuers of municipal securities.”
Given its statutory limitations, the MSRB was not assessed for some components of the FSOC recommendations within this category, including Recommendation 3.2 to “consider enhancing public reporting requirements for climate related risks in a manner that builds on the four core elements of the Task Force on Climate-related Financial Disclosure (TCFD)” and Recommendation 3.4 to “consider whether such disclosures should include disclosure of GHG emissions.”
However, the MSRB can be assessed for progress with Recommendation 3.1 to “review their existing public disclosure requirements and consider, as appropriate, updating them to promote the consistency, comparability, and decision-usefulness of information on climate-related risks and opportunities, consistent with their mandates and authorities.”
Based on the October launch of the update to EMMA, indicators to allow investors to see if new bond issues include climate-related ESG criteria. The MSRB stated that “the new ESG Type field will show whether a new issuance has been designated as Green, Climate, Social, or Sustainable, among others, while the new ESG Certifier field will show whether the new issuance has been certified by one of several verifiers that assess the issuance for adherence to ESG criteria.” This is aligned with Ceres recommendations to make further updates to EMMA to facilitate timely, machine-readable disclosure of climate risk and ESG factors. This update also aligns with the MSRB’s Strategic Plan to improve the user experience and system security, performance, and functionality of EMMA 3.
Nonetheless, we believe the MSRB can do further work on to meet investor needs for disclosure. The MSRB can make an affirmative recommendation to the SEC for them to address disclosure needs, including by sharing evidence received via the RFI process.
Next Steps
Recommend that municipal issuers adopt the Task Force on Climate-Related Financial Disclosures (TCFD) disclosure framework in order to provide investors and stakeholders with timely, decision-useful climate-relevant information,
Support efforts to amend the SEC Continuing Disclosure Rule to include climate risk disclosure.
Further update EMMA to facilitate timely, machine-readable disclosure of climate risk and ESG factors. This aligns with the MSRB’s Strategic Plan to improve the user experience and system security, performance, and functionality of EMMA.
*These recommendations, all within the MSRB’s mandate and authority, are designed to address climate-related financial risks and protect our municipal bond markets and financial system.
Methodology
The market is currently mispricing climate risk. The lack of consistent disclosure by entities supervised by U.S. financial regulators is an obstacle to market efficiency and to the accurate pricing of climate risk. In response, the FSOC recommended that members:
“review their existing public disclosure requirements and consider, as appropriate, updating them to promote the consistency, comparability, and decision-usefulness of information on climate-related risks and opportunities, consistent with their mandates and authorities.” (FSOC 3.1)
“consider enhancing public reporting requirements for climate related risks in a manner that builds on the four core elements of the Task Force on Climate-Related Financial Disclosure (TCFD)” (FSOC 3.2)
“consider whether such disclosures should include disclosure of GHG emissions” (FSOC 3.4)
Following on FSOC Recommendations 3.1, 3.2, 3.3, and 3.4, we assessed the extent to which the agency has enhanced public reporting requirements, consistent with its statutory mandates.
No Progress
Reasoning
Ceres has been unable to find any notable activity in this category that can contribute to this assessment of the MSRB.
Next Steps
Enhance board governance and senior management expertise as it pertains to climate risk and create a board level standing committee on municipal bond market climate risk management.
Update the Municipal Securities Exams (for example the Series 52 and Series 53 exams) to test for climate risk management competency.
Encourage all U.S. municipal bond market stakeholders, such as bond counsel, data vendors, valuation services, bond insurers, municipal advisors, and especially rating agencies and other standard setters, to fully incorporate climate risk management into their internal processes.
*These recommendations, all within the MSRB’s mandate and authority, are designed to address climate-related financial risks and protect our municipal bond markets and financial system.
Methodology
Supervision and regulation of climate risk is urgently needed to ensure the resilience of supervised entities and our financial system.
Following FSOC Recommendations, we assessed the extent to which the agency has “clarified or enhanced risk management expectations, guidance and requirements (FSOC 4.8).” We will also consider if agencies have:
“reviewed regulated entities’ efforts to address climate-related risks (FSOC 4.6)
“reviewed existing regulations, guidance and regulatory reporting to identify where clarifications and enhancements are needed” (FSOC 4.7)
The Municipal Securities Rulemaking Board (MSRB) is the principal regulator of the $4 trillion municipal securities market, where it “protects and strengthens the municipal bond market, enabling access to capital, economic growth, and societal progress in communities across the country.” As part of its mission, the MSRB regulates the conduct of municipal securities dealers and advisors and establishes the rules, related guidance, and supporting compliance resources that govern these entities.
Overseen by Congress and the Securities and Exchange Commission (SEC), the MSRB’s rules generally require SEC approval before they can be implemented. Although the MSRB is the principal regulator of the municipal securities market, it does not enforce its rules or perform compliance examinations. Rather, the MSRB supports the Financial Industry Regulatory Authority (FINRA), the SEC, and federal bank regulators who share responsibility for compliance exams and enforcing the rules that the MSRB is responsible for drafting.
Investors are increasingly aware of the significant climate and ESG risks inherent in their business activities and investment portfolios. Municipal bond investors and the municipalities themselves face unique climate risks as – unlike companies that can move their headquarters and critical facilities, shift their product mixes and supply chains, and pivot their strategies – they are place-based and mission-constrained. Industry associations have developed voluntary best practices, and private vendors offer ESG certification services. However, adherence to these standards is optional and not standardized or regulated. The MSRB has an important role to play in protecting issuers, investors, and the overall fairness and efficiency of the municipal securities market through ensuring the disclosure of transparent, relevant climate information.
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