Insider Engage, is part of the Delinian Group, Delinian Limited, 4 Bouverie Street, London, EC4Y 8AX, Registered in England & Wales, Company number 00954730
Copyright © Delinian Limited and its affiliated companies 2023

Accessibility | Terms of Use | Privacy Policy | Modern Slavery Statement

Texas Senate Bill 19: A Clash of Stakeholder Interests

Texas Capitol and Ranger Statue

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 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.

Kroll Bond Rating Agency’s (KBRA) environmental, social, and governance (ESG) Management approach highlighted the critical role that stakeholder preferences can play and the effect they can have on financial outcomes. Texas SB 19 represents the latest in a series of high-profile episodes across the country where conflicting stakeholder preferences on issues related to ESG have real-world financial implications. Competing stakeholder preferences, particularly on social issues, also highlights why KBRA does not offer subjective ESG scores but instead focuses on the tangible credit impact of stakeholder preferences on an issuer’s operating plans and financial performance.

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.

KBRA’s Focus on the Growing Importance of Stakeholder Preferences

KBRA has long recognized that each issuer, regardless of industry or sector, may face pressures from their stakeholders’ own ESG preferences. The core of KBRA’s ESG analysis of social issues focuses on stakeholder preferences as public opinion on ESG issues is evolving rapidly and can affect an issuer’s revenue, costs, and growth strategies. ESG stakeholder preferences are complex as there are often competing interests at work that may represent risks or opportunities for issuers now or in the future.

Across the broad landscape of corporate, financial institution, and government (CFG) issuers, these stakeholders can include voters, investors, customers, employees, and regulators, among others. KBRA believes it is critical for issuers to demonstrate awareness of the ESG preferences of their key stakeholder groups and how these preferences may impact issuers’ operating, capital, and financial strategies. The effects of stakeholder preferences on ESG issues can affect the demand for an issuer’s product and services, the strength of its global reputation and branding, its relationship with regulators and lawmakers, and, importantly, its cost of and access to capital. As KBRA analysts interact with management teams, one guiding question often used to initiate inquiry into an issuer’s management of stakeholder preferences and related reputational risk is: Do your investors, customers, employees, regulators, voters, or other key stakeholders have ESG goals or policy preferences that present risks and/or opportunities to your enterprise? When evaluating stakeholder preferences, it is important to underscore that KBRA does not make subjective, value-based judgments but instead objectively evaluates how stakeholder interests can affect an issuer’s current or emerging risk of default.

The Often-Competing Interests of ESG Stakeholder Preferences

Increasingly, ESG integrated investing and ESG-related mandates, such as exclusionary screening, have become mainstream for global investors and have amplified the voices of a broader array of stakeholders than historically has been the case. However, as Texas SB 19 highlights, stakeholder preferences can often be competing and can vary greatly by geographic location. From the viewpoint of Texas politicians and regulators, they are protecting an industry critical to the state and its voters, while Citigroup, J.P. Morgan, and BofA have said they are integrating their customers’ and stakeholders’ ESG preferences by restricting funding to certain controversial industries such as firearms, oil and gas, and tobacco.

There have been many recent examples of competing stakeholder interests on regulatory matters. A similar situation occurred in Louisiana in 2018, where the state’s Bond Commission voted to exclude Citigroup and BofA on a deal due to their restrictive policies on firearms. The North Carolina “Bathroom Bill” is frequently cited as an example of a discrepancy between voter and regulatory interests and the business community. The bill required people in North Carolina to use the bathroom of their gender assignment at birth and was criticized as discriminatory against the LGBTQ+ community. The bill faced widespread backlash from businesses operating in the state and parts of the bill were later repealed. More recently, in spring 2021, Barclays faced backlash when it started underwriting bonds for new prisons in Alabama after committing to ending its financing of for-profit prisons. It later backed out of the deals.

While it is too early to know what the ramifications of Texas SB 19 will be for the state municipal market and financial institutions, it is important to note that deals in the state have not slowed since the law’s passage—118 bond sales have been issuedout of Texas totaling $3.52 billion since September 1.


Texas SB 19 highlights the importance of KBRA’s approach to ESG-related credit issues around stakeholder preferences. KBRA believes it is not the role of a credit rating agency to make value-based judgments and instead focus on the way ESG factors can impact credit default risk. Stakeholder preferences can be important to credit risk but only when they affect financial outcomes and impact the risk of default. KBRA’s view is that subjective beliefs on ESG-related issues are left up to the stakeholder, not to rating agencies.

© Copyright 2021, Kroll Bond Rating Agency, LLC and/or its affiliates and licensors (together, “KBRA”). All rights reserved. All information contained herein is proprietary to KBRA and is protected by copyright and other intellectual property law, and none of such information may be copied or otherwise reproduced, further transmitted, redistributed, repackaged or resold, in whole or in part, by any person, without KBRA’s prior express written consent. Information, including any ratings, is licensed by KBRA under these conditions. Misappropriation or misuse of KBRA information may cause serious damage to KBRA for which money damages may not constitute a sufficient remedy; KBRA shall have the right to obtain an injunction or other equitable relief in addition to any other remedies. The statements contained herein are based solely upon the opinions of KBRA and the data and information available to the authors at the time of publication. All information contained herein is obtained by KBRA from sources believed by it to be accurate and reliable; however, all information, including any ratings, is provided “AS IS”. No warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability, or fitness for any particular purpose of any rating or other opinion or information is given or made by KBRA. Under no circumstances shall KBRA have any liability resulting from the use of any such information, including without limitation, for any indirect, special, consequential, incidental or compensatory damages whatsoever (including without limitation, loss of profits, revenue or goodwill), even if KBRA is advised of the possibility of such damages. The credit ratings, if any, and analysis constituting part of the information contained herein are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. KBRA receives compensation for its rating activities from issuers, insurers, guarantors and/or underwriters of debt securities for assigning ratings and from subscribers to its website. Please read KBRA’s full disclaimers and terms of use at


Van Hesser, Chief Strategist

+1 (646) 731-2305

William Cox, SMD, Global Head of Corporate, Financial and Government Ratings

+1 (646) 731-2472

Pat Welch, Chief ESG and Ratings Policy Officer

+1 (646) 731-2481

Emilie Nadler, Associate Director, ESG

+1 (646) 731-3386