Both sentences are possible, but #1 seems a less usual form of wording. Based on the general meanings of the words, "background" tends to suggest the past events and circumstances that caused the issue to arise, while "setting" tends to suggest the circumstances in which the issue exists now. In practice, though, "background" could here include elements of the current situation, and "setting" could include elements of past history, so there's a fair amount of overlap in meaning.
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CalifJimLet me suggest something different, because neither of those appeals to me