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