Everyone seems to be talking about environmental, social, and governance (ESG) investing—that is, mission-oriented investments with positive impacts beyond economic returns. But we’re still working out how ESG fits into public finance and how governments can take part. Most of the thought leadership so far, including from GFOA itself, has focused on municipal debt in the form of ESG bonds. But some securities are basically E, S, or G in name only. Governments of all sizes should expand their focus from the financing stage all the way to the initial planning phase to truly maximize the potential of ESG.
The successful execution of a capital improvement plan (CIP) is inextricably linked to the ability to finance the designated projects. Debt plays a key role in funding capital projects for many governments, and with municipal investors heightening both their demand for and scrutiny of ESG bonds, the integration of these metrics is increasingly crucial in the drafting of capital plans. The finance officers in charge of capital planning need to consider these factors, but they must also highlight them in the CIP so that their colleagues who obtain financing (such as debt, grants, and development) can clearly identify and disclose which projects meet certain metrics.