A legacy of leadership Governments have a long history of leading efforts to improve what we now call ESG issues—setting green In fact, constituents regard governments as most standards, defining supplier diversity programs to combat social injustice, and establishing supply chain responsible for addressing ESG concerns—more so reporting and metrics, among other achievements.What’s new? than corporations or individuals. In our rank-order poll on who individuals regard as primarily responsible for For more than 50 years, the federal government’s addressing environment and social issues, 54 percent immense purchasing power and role in procurement of respondents say the federal government, followed has created and accelerated new markets for by state government at 48 percent, individuals (31 sustainable products and services. When the goal is percent), local governments (29 percent), Key forces are driving the need for all levels of set to convert 600,000 vehicles to a 100 percent zero- corporations (23 percent), and international government—federal, state, regional, local, and tribal— 4 emission electric fleet—per the executive order organizations (15 percent). to focus on ESG now. COVID-19, social and economic issued by the White House in 2021—it sends a clear pressures, and other disruptions have reinvigorated 1 On the whole, governments' engagement with signal for market demand. broad-based discussions of diversity, equity, and environmental and social issues affects people’s inclusion (DEI). Governments are being held approval of governments and their representatives— accountable by employees, constituents, and society only 8% of respondents say it does not affect their generally, to urgently address heightened climate approval at all.Respondents ranked data privacy and events, advance equity for all, and drive positive social security as the most important ESG issue to them (72 change. percent), followed by affordability and accessibility (70 As the modern ESG percent), yet the majority (60 percent and 61 percent, Increasing risks—from extreme weather to infectious respectively) indicated they are less than satisfied with diseases to social cohesion strains—can have 5 movement evolves, how government is addressing the issues. compounding consequences and a profound impact on mission achievement at all levels of government. governments now have In addition to those of constituents and employees, Additionally, the mounting costs of such risks— the heightened expectations of credit rating agencies including natural disasters, cyber-attacks, excess an opportunity to build make ESG a business imperative that cannot be medical care expenses, and health disparities—drive ignored. In March 2022, credit rating agency S&P greater urgency for action on ESG. on a foundation of Global Ratings (S&P) published its first ESG Credit Indicator Report Card for U.S. states and territories, Juxtaposed against these urgent needs is the reality leadership and answer a which reflects S&P’s opinion of the influence that ESG that public trust in government as an institution is 6 factors have on their credit rating analysis. broader call, with an declining in the U.S. and in many countries across the globe. According to the 2022 Edelman Trust Recent landmark federal funding programs include Barometer, the U.S. trust index—the average percent observable shift in the ESG-related investments, as well as incentives to spur trust—in governments in 2022 was just 42 points, ESG-related action by state and local governments. For 2 down 10 points since 2017. way they have typically example, the Infrastructure Investment and Jobs Act (IIJA), enacted in November 2021, includes significant Importantly, the U.S. public generally values and led on ESG issues. investments in carbon reduction, electric vehicle expects governments’ involvement and action related charging infrastructure, broadband infrastructure, and to ESG issues—and wants governments to take more supply chains for clean energy technologies. To action. In February 2022, KPMG LLP (KPMG) position for competitive grant opportunities that are conducted a survey of the U.S. public to examine part of the program, state and local governments will individuals‘ sentiments on governments‘ approach to need to demonstrate that they will be good stewards ESG. While about 7 in 10 individuals indicate that of the funding from an ESG perspective. governments should play a leading role in solving environmental and social issues, only 35% agree or Governments have the opportunity to seize this strongly agree that the governments are taking the moment to reestablish their role with respect to 3 appropriate amount of action to solve these issues. driving gains on major ESG issues. 5 2 Ibid. 1 2022 Edelman Trust Barometer Fact Sheet: President Biden Signs Executive Order Catalyzing America’s Clean 3 6 KPMG survey among U.S. residents S&P Global, ESG Credit Indicator Energy Economy Through Federal Sustainability 4 Environmental, Social, and Governance: Environmental, Social, and Governance: Government Ibid. Report Card: US States And Territories 3Government leadership as a catalyst for success leadership as a catalyst for success 4 © 2022 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent member © 2022 KPMG LLP, a Delaware limited liability partnership and a member firm of the KPMG global organization of independent firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.