Responsible Finance recognizes the vital role that financial services play in fostering economic and social development while also acknowledging the need to mitigate risks and promote financial stability. Elements of responsible finance may include offering loans or investments to businesses that prioritize sustainability, promoting transparency and accountability in financial reporting, and supporting diversity and inclusion. At KPMG, our Responsible Finance team supports financial institutions in achieving their responsible finance mission through various Capital Markets strategies, including Securitization and Impact Investing. Through Securitization and Impact Investing, financial institutions can promote the issuance of social bonds that are aligned with sustainable development goals, such as those issued to finance projects related to sustainable infrastructure, healthcare, education, and affordable housing.
An essential part of supporting our clients during this process is to help align them with the International Capital Markets Association (“ICMA”) Social Bond Principles, the leading industry framework for social bonds. By doing this, issuers of social bonds can establish trust and credibility with investors, attract new investments, and contribute to positive social outcomes.
Below are examples of client needs and where we can help them align to the ICMA Social Bond Principles1:
1. Clearly define the social objectives of the Use of Proceeds (Principle 1), such as financing underbanked consumers or affordable housing.
2. Establish trust and credibility of the issuer’s Process for Project Evaluation and Selection (Principle 2) to articulate to investors the relevant social focus.
3. Demonstrate strong social credentials through the Management of Proceeds (Principle 3) to ensure an effective process to track, allocate, and manage cashflows.
4. Provide transparent Reporting (Principle 4) through accurate annual reporting on all bond transactions.
5. Align with ethical and sustainable investment goals through External Verification (Principle 5). The principles require that bond proceeds be verified by an independent third party to ensure that they are being used consistent with the bond's social objectives and the issuer's ethical and sustainable investment goals.
KPMG understands that issuing social bonds is not a one-time event but an ongoing process that demands a robust framework and infrastructure along with continuous monitoring and strong compliance and controls. We offer wide-ranging services to support this journey, including:
1. Responsible Finance advisory services. Examples can include:
a. Gap assessments and assistance with sustainability reporting and understanding of sustainability scoring parameters
b. Advising clients in the development of their social mission and framework
c. Facilitate risk management considerations in building out socially responsible projects.
2. Evaluations of readiness for bond offering issuance, which may include assessment of design and implementation of the bond offering issuance program
3. At-Issuance, Restricted Use Securitization Agreed Upon Procedures (AUP)
4. Post-Issuance Annual Reporting (can be published to supplement the annual sustainability bond transaction report)
a. General Use AUP in accordance with the AICPA attestation standards (ATC 215)
b. Compliance examination or review of the use of proceeds
By prioritizing social impact as a part of financing efforts, companies can attract investors and customers who align with their values and are committed to promoting positive change in the world. It can also enhance their reputation and help them differentiate themselves from competitors.
