KBRA Releases ESG Research: Texas Senate Bill 19–A Clash of Stakeholder Interests

NEW YORK--(BUSINESS WIRE)--Kroll Bond Rating Agency (KBRA) releases ESG research on a Texas law requiring firms that do business with state entities—including state agencies, counties, municipalities, and school districts—to certify they do not discriminate against the firearm or ammunition industries, which came into effect on September 1, 2021.

Senate Bill 19 (SB 19), which was passed in mid-April and signed into law in June by Republican Governor Greg Abbot, comes on the heels of Texas SB 13, which prevents state investments in companies that restrict business activities with the oil and gas industry. Reaction to SB 19 included three of the state’s top municipal bond underwriters—J.P. Morgan Chase, Citigroup, and Bank of America (BofA)—electing to pull back from competing for new issue business in the state on grounds they could not or would not certify compliance with the law. As the second largest municipal debt market after California, Texas had over $58 billion in bond issuance in 2020. J.P. Morgan, Citigroup, and BofA are among the top five underwriters in the state, accounting for $6.4 billion of issuance in the first half of 2021.

Key Takeaways:

• Texas SB 19 exemplifies the complexities of competing stakeholder preferences.
• Stakeholder preferences on ESG issues and the related reputational risk is a growing concern for debt issuers. As such, stakeholder preferences have been a key component of KBRA’s analysis of ESG-related credit issues.
• KBRA’s ESG analysis remains objective and focused on an issuer or transaction’s risk of default. KBRA does not assign value-based judgments around the subjectivity of stakeholder ESG preferences but instead focuses on the relevance of these preferences to credit risk.

Click here to view the report.

Related Publications

• Credit Ratings Deserve ESG Risk Analysis, Not ESG Scores
• The Power of the Stakeholder: Oil Majors and Climate Transition Planning

About KBRA

KBRA is a full-service credit rating agency registered in the U.S., the EU and the UK, and is designated to provide structured finance ratings in Canada. KBRA’s ratings can be used by investors for regulatory capital purposes in multiple jurisdictions.