Social Bonds and Loans

ACRA verifies compliance of the client’s obligations with the Social Bond Principles of the International Capital Market Association (ICMA) and the Social Loan Principles of the Loan Market Association (LMA) and the Loan Syndications and Trading Association (LSTA).

WHY CHOOSE ACRA?

QUESTIONS AND ANSWERS

What are social debt obligations?

Social debt obligations are any types of debt instruments, the purpose of which is to finance or refinance projects aimed at solving social and economic problems and developing new social and public projects.

Social bonds and loans differ from classical ones in that the funds from them are directed to solving a specific social problem and improving the quality of life of specific groups of the population.

A definition of social bonds can be found in the ICMA’s 2021 Social Bond Principles, while social loans are defined in the LMA/LSTA 2021 Social Loan Principles.

Which projects can be considered social?

Examples of target group include but are not limited to the following:

1. People living below the poverty line.
2. Excluded and/or marginalized groups.
3. Disabled people.
4. Migrants and/or displaced persons.
5. Poorly educated segments of the population.
6. Segments of the population who have limited access to vital goods and services.
7. The unemployed.
8. Women and/or sexual and gender minorities.
9. Senior citizens and vulnerable young people.
10. Other vulnerable groups, including victims of natural disasters.

Currently there is no concise list of target groups for Russian issuers. However, this list is expected to be published in the near future.

According to the ICMA’s current principles, determining a specific social group as part of a transaction is desirable but not mandatory. If a project solves a significant social problem of a region/territory, but at the same time, the local community as a whole benefits from it, such a project can also be recognized as social.

What is a social debt obligation assessment for?

If an issuer/borrower wants to finance its social projects and at the same time clearly highlight its positive contribution to the development of society, it can label its financial obligations as social. This has the following advantages:

1. Creates a positive image of a socially responsible company.
2. Helps to increase the pool of investors and creditors.
3. Results in potential oversubscription for the issue.
4. Increases the transparency of the transaction.
5. Allows the issuer to receive benefits from the state.¹
   

Preparing for assessment of a social debt obligation

The ICMA has issued a special checklist for issuers and borrowers of social obligations, which allows them to analyze themselves and their projects for loan readiness. Companies are encouraged to read this document before deciding on a transaction.

The next steps taken by a potential borrower/issuer are as follows:

1. Determine the project(s) for which funding will be attracted.
2. Conduct an initial assessment of project(s): is (are) it (they) social and in line with ICMA principles and current market practices?
3. Determine which social problem this project will resolve and the population groups who will benefit from it.
4. Determine the social and ecological risks involved in the implementation of the project and how the issuer plans to mitigate these risks.
5. Develop a Social Finance Framework (SFF), which is an officially approved public document that defines:
   1. Use of proceeds.
   2. Process of evaluating and selecting projects.
   3. Management of proceeds.
   4. Reporting.
6. Determine whether additional policies and procedures are needed for each of the SFF clauses, and if necessary, develop them.
7. Verify the bonds/loans planned for placement with a certified verifier — ACRA.
8. Prepare documentation for the placement of bonds or obtaining a loan.
9. Choose an exchange for placement/creditor bank.
10. Carry out a financial transaction and enter the national and/or international registries.
11. Maintain annual reports on the use of received funds.

Recommended materials

1. ICMA’s social bond principles and guidelines
2. LSTA/LMA’s social loan principles
3. Moscow Exchange’s listing rules
4. Bank of Russia’s securities issue standards

ACRA’s social obligation Verification process

The process for assessing social obligations is as follows

ACRA carries out the assessment in no more than 30 (thirty) business days following the client’s provision of the necessary documents and information.