Earlier this week, CCM published an informational piece on the financial and credit aspects we would like to see tackled in the proposed American Infrastructure Bond (AIB) Program, a/k/a Build America Bonds 2.0. In this week’s blog, we think it is important to highlight issuer reporting as part of the program.
We have seen over the last few years in the corporate bond sector efforts to improve transparency with the addition of impact and ESG reports for corporate offerings. This comes as the result of increased issuance of green bonds, sustainability bonds, and bonds financing relevant and timely initiatives such as covid-19 relief and minority advancement. While we continue to see progress in metrics and reporting for corporate bonds, municipal bonds seem to be trailing.
We have seen use of proceeds language becoming more prevalent across corporate and municipal bonds, however one of the key differentiators is an after-issuance proceeds analysis, where corporates have made great leaps. In the municipal space, the bond’s use of proceeds helps investors, such as us, become comfortable with where the monies are being spent and the types of projects being financed. However, the adaptation of an after-purchase use of proceeds report to provide an update on financing, metrics, and potential changes to the property or project has been slow. There are some municipal issuers who are taking a lead role in this effort and we are hopeful more will follow suit and that it will be a requirement as part of the proposed AIB program.
For all bonds potentially issued as AIBs, being able to see details and have more transparency from the issuers on how the investment is having positive societal and environmental impacts helps improve investor confidence and builds resilience in the financial system. For example, the type of infrastructure that was built with the proceeds, how many jobs were created (both temporary and permanent) as a result of the issuance, what types of jobs were generated, and what were the environmental benefits. Additional reporting could include metrics helping minorities and communities in need such as if the project is in a persistent poverty county, majority-minority census tract, racially or ethnically concentrated area of poverty, or aiding low- to moderate-income people.
We are cognizant of the fact that additional reporting for issuers requires time and resources that might not be available. We are hopeful that there will be federal support and assistance in the reporting efforts given the purpose of the AIB is to finance capital projects, create jobs, and stimulate the economy.