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Industry roundup: 18 June

HSBC USA offers sustainability-linked loans for commercial banking clients

HSBC Bank USA, part of the HSBC Group, has announced that it is offering sustainability-linked loans (SLL) that will enable US businesses to tie their borrowing to activities that support a more sustainable, resilient and prosperous world. The SLLs are available in a variety of corporate loans and credit facilities, with terms linked to pre-determined sustainability performance targets (SPTs). Achieving SPTs results in a lower interest expense, effectively bringing financial incentives to the borrower’s sustainability strategy.

In partnership with clients, HSBC structures SLLs in accordance with the Sustainability Linked Loan Principles, which are voluntary global guidelines set by the independent Loan Market Associations, whereby SPTs are to be meaningful and ambitious for the business, and performance is verified and reported regularly. While tailored to be company specific, examples of SPTs include greenhouse gas emissions reduction, use of renewable energy, diversion of waste from landfills and reduced water use, as well as social and diversity metrics like increased workforce diversity. 

Mercon Coffee Group partnered with HSBC in the first coffee-only sustainability-linked revolving credit facility. Mercon aims to make its supply chain as sustainable as possible - from water and forest conservation and farm management, to implementing the best social practices in their producers’ coffee plantations - and this syndicated facility helps to fund Mercon’s sustainability goals through its sustainable production program LIFT. The interest cost is linked to Mercon’s performance against defined environmental and social SPTs, and HSBC will reduce the interest rate on the loan when Mercon meets the SPTs.

"Approximately 125 million people worldwide depend on coffee for their livelihood, and 25 million small farmers producing 80% of the world’s coffee," said Tony Nanez, North America head of Commodity Finance at HSBC Global Trade and Receivables Finance. "HSBC is proud to support Mercon in its mission to support these farmers through our participation in their syndicated Sustainable-Linked financing facility."

 

FIS partners with C3 AI on AI-enabled risk solutions

FIS has announced the first in a new series of solutions developed in partnership with C3 AI that are designed to help capital markets firms tap into their organisational data to increase efficiency and better manage regulatory compliance and risk.

The AML Compliance Hub leverages C3 AI’s machine learning technology, combined with the financial industry domain expertise of FIS, to improve the efficiency of financial crime detection. Designed to help capital markets firms fight the increasing threat of financial crime, the machine learning-based platform aggregates and analyses client data across disparate systems to enhance AML and KYC processes, improving decision-making and reducing false positive alerts.

"As an early adopter of AI technology in our solutions, FIS is accelerating our investment in machine learning to help our clients better take advantage of the vast amount of structured and unstructured data within their systems," said Nasser Khodri, head of Capital Markets at FIS. "From cost savings through AI-powered automation to enhanced decisioning and analysis, AI offers great promise for forward-looking financial institutions that want to tap into their data for competitive advantage."

Recent research from the FIS Readiness Report shows that 78% of capital markets firms plan to invest in AI in 2021 to advance their strategic goals. The FIS Compliance Hub provides a dashboard view where users can view reports and receive alerts as to key risk drivers, suspicious activity, and AML scoring. By reducing false positives, organisations can focus on true threats that require dedicated attention and timely action.

 

Coupa unveils products aiming to make a sustainable business impact

Coupa Software has announced new product innovations designed to help organisations maximise business and ESG impact through their spend. With Sustainable Business Spend Management (BSM), supply chain, sourcing, procurement, and finance professionals can collaborate to ensure every dollar spent benefits the business, as well as the community and the planet.

The new capabilities include diversity and sustainable identifiers in search results and filtering. Organisations can use visual tags on supplier records and item cards to identify if the supplier or product is from a diverse or sustainable business. Customers can also filter search results to only show suppliers or items from diverse or sustainable businesses. Companies can also set opportunity triggers to help identify diverse suppliers when creating new requisitions.

Users can collect supplier diversity data and certifications directly in the Supplier Information Management (SIM) tool via a form. Supplier Onboarding offers a clear path for new suppliers to onboard onto Coupa’s BSM platform to get easily discovered, helping drive further lead generation for their businesses, while the Supplier Diversity In/Out API makes it easier to find a diverse supplier. Analytics capabilities also help business leaders measure success directly against their goals.

In terms of visibility into ESG Impact and benchmarking, a new Diversity Dashboard shows organisations the portion of their spend that comes from diverse-owned suppliers. Coupa will also now pre-calculate the environmental impact of e-invoicing and e-purchasing, including the amount of trees, water, oil, and carbon emissions saved.

 

Impending global ESG reporting standards to lift the veil on disclosures 

Critical sustainability metrics such as direct and indirect emissions, energy performance, climate-related strategies & targets, and social key performance indicators (KPIs) that include pay inequality, employee safety and supply chain practices will experience a meteoric rise in disclosure from companies under a potential new set of global ESG reporting standards.

A new report, 'Convergence Cometh, Know Thy Blind Spots' from CRISIL GR&RS, identifies 45 KPIs likely to be included in the potential global framework of ESG reporting standards. International Financial Reporting Standards (IFRS) will likely roll out such standards in collaboration with standard-setting bodies and regional regulators.

"The inclusion of these KPIs in a set of global disclosure rules will create a new and heightened level of transparency on corporate practices around many important environmental and social issues," says Abhik Pal, global head of Research at CRISIL GR&RS. "However, it’s important to note that even an eventual global standard may not fully integrate financial performance, ESG financial materiality, sector-specific factors and social impact materiality."

The lack of consistent and globally accepted ESG reporting standards and independent frameworks built from different methodologies has influenced the ESG integration across sustainable investment and lending practices. In such a scenario, the impending guidelines from the IFRS Foundation will serve as a global baseline for ESG reporting and lead to better ESG data and broader coverage among corporates across the world. In addition, the EU’s influential Corporate Sustainability Reporting Directive (CSRD) will be a good reference in both the EU and beyond due to its breadth, granularity and alignment with the evolving sustainability regulations in Europe.

To help investors and lenders prepare for the implementation of an eventual global standard, CRISIL GR&RS analysed 120 KPIs recommended by select exchanges and standard-setting bodies and identified 45 KPIs across the E,S, and G pillar. CRISIL GR&RS also identified an additional 15 KPIs that could attract mandatory reporting across EU corporates and drive reporting requirements aligned to Sustainable Finance Disclosure Regulation (SFDR) and EU taxonomy guidelines.

While exchanges and regulators might gradually provide guidance on sector-specific metrics for corporates to report on, a full-fledged integration of sector KPIs into mandatory international standards is still a long way off. That said, the potential architecture of a globally converged ESG reporting standard will bring both benefits and challenges for financial market participants.

The report reviews the impact of a global ESG reporting standard and the benefits and challenges to asset managers and banks. Asset managers can leverage the impending convergence in ESG reporting standards to bolster their in-house research, enhance product-labelling standards and build more credibility with asset owners. For sustainable lending teams, the impending convergence will drive granularity across term sheets, climate-risk stress testing and innovative social products. 

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