The Transparency Act

Introduction

This report sets out how Kommunalbanken AS (KBN) works on due diligence, as well as the measures it implements and its monitoring of the risks that it identifies. The report covers the period of the 2023 accounting year.

KBN carries out due diligence assessments in accordance with the Act relating to enterprises’ transparency and work on fundamental human rights and decent working conditions of 1 July 2022 (the Transparency Act).

About KBN

KBN is a credit institution, defined as systemically important by Norway’s authorities, which has as its primary function the provision of loans to Norwegian municipalities and county authorities. The loans made by KBN are used to finance a range of welfare investments, such as schools, nurseries, health and care facilities and waste and wastewater systems. KBN is wholly owned by the Norwegian state, with the Ministry of Local Government and Regional Development acting as KBN’s owner. The state is the owner of Kommunalbanken in order to offer stable, long-term and efficient financing to the local government sector. The state’s aim as owner is to achieve the highest possible return over time subject to the limits of sustainability. KBN has around 90 employees and operates from offices in central Oslo.

For more information on our activities and organisation, see our 2023 annual report, which is available on Financial reports - KBN.

Governing documents

KBN’s governing documents set out how we are to work on sustainability and to meet our obligations. Our General Guidelines for Sustainability (the "Guidelines") have been approved by the Board of Directors and thus represent the highest level of governing documents. The Guidelines state that sustainability must be an integral part of KBN’s core activities, strategy process and operating plans. They also state that KBN must work in an active, targeted and systematic way on sustainability. They define ‘sustainable business operations’ as business operations that balance financial, social and environmental considerations, contribute to the promotion of respect for the climate and environment, fundamental human rights and decent working conditions, address diversity, equality, anti-discrimination and ethical conduct, and prevent corruption and other forms of financial criminality both in KBN’s own operations and at its suppliers and business partners.

The General Guidelines for Sustainability stipulate that KBN must regularly conduct risk-based due diligence assessments to map and consider actual and potential negative consequences for fundamental human rights and decent working conditions both in KBN’s own business activities and at its suppliers and business partners. The Guidelines are approved by the Board of Directors.

The requirement for KBN’s business operations to be sustainable pervades its governing documents. Our Code of Conduct, which sets out the ethical standards that employees must display in their work and in their interactions with colleagues and external parties, states that KBN is committed to contributing to the sustainable development of society as well as to long-term value creation by adopting responsible business practices which respect environmental, social and governance conditions. Our General Guidelines for Procurement state that KBN’s procurement processes must be arranged so that they contribute to promoting KBN's goal of sustainable business operations. According to the General Guidelines for Procurement, this means that procurement must contribute to reducing damaging environmental impacts and to promoting climate-friendly solutions where relevant. Procurement at KBN is also required to promote respect for fundamental human rights and employment rights, equality and diversity, ethical conduct and social responsibility. Procurement must be carried out in such a way as to ensure that KBN has reasonable oversight into the use of subcontractors by suppliers and their subcontractors, and that KBN's sustainability objectives are promoted throughout the supply chain. KBN’s General Guidelines for Procurement are approved by the Board of Directors.

The CEO is responsible for determining supplementary detailed guidelines within the framework established by the Board's general guidelines. The supplementary guidelines for procurement contain additional requirements relating to how procurement is carried out. They also set out different requirements for different levels of procurement depending on the estimated value of the goods or services that are to be procured. The higher the value, the stricter the requirements for the procurement process and thus also the stricter the requirements in terms of the inclusion and attention paid to sustainability in the procurement process. KBN’s specification of the procedure for monitoring contracts and suppliers states that sustainability and social responsibility must be topics in the annual fixed monitoring meetings held with suppliers.

KBN’s Guidelines for Sustainable Investments ensure that ESG factors are integrated into KBN’s investment decisions. The Guidelines state that all entities must assessed on three sustainability dimensions, with such assessments leading to a traffic-light categorisation. KBN’s credit strategy for its lending activities and credit assessment principles for borrowers ensure that ESG criteria form part of its assessment of the credit worthiness of its customers.

Whistle-blowing channels and complaint mechanisms

KBN employees can report censurable conditions to their line manager or to KBN’s compliance function. Employees are also able to report matters externally via KBN’s whistle-blowing channel in instances where they do not wish to whistle-blow internally. The whistle-blowing channel is operated by an external provider so that employees can whistle-blow anonymously.

There is a separate page on KBN’s website for external parties that wish to report censurable conditions at KBN. External parties can report matters to KBN’s compliance function or can use the external whistle-blowing channel operated for KBN by a third-party provider.

Due diligence report

Procurement and agreements

At KBN, the head of each individual department is responsible for procurement and the monitoring of suppliers by their department. In 2023, KBN spent approximately NOK 170 million on goods and services. Its biggest procurement categories are IT services, consulting services, banking, pension and insurance services, services from financial infrastructure providers (banking and custody services, clearing services etc), IT equipment and audit services.

KBN has produced a set of expectations for suppliers that contains objectives relating to environmental, social and governance factors. The expectations stipulate inter alia that KBN’s suppliers must have a strategy and work systematically to ensure diversity and equal treatment in their own organisation, that they must respect employee rights in their organisation and must choose suppliers who do the same, and that they must know their suppliers and obtain the necessary information to assess them, including submitting them to ESG requirements and following up through their supply chains.

More information on our expectations of suppliers is available on our website

KBN’s expectations of its suppliers are operationalised by means of the inclusion of minimum requirements and assessment criteria in its tender requests. KBN also has a set of contractual requirements designed to safeguard fundamental human rights and decent working conditions that we use in our agreements. These contractual requirements, which are based on key UN and ILO conventions, include a requirement that suppliers respect human rights and ensure decent working conditions.

KBN’s mapping of its suppliers and procurement of services and products indicates that there may be an inherent risk of breaches of human rights and/or decent working conditions in the production of the IT equipment that it procures, primarily as a result of a lower level of compliance with human rights and/or employment conditions in the countries in which the equipment or parts of the equipment are manufactured. Going forward, this topic will be on the agenda in KBN’s monitoring of its equipment suppliers.

KBN’s canteen, cleaning and maintenance services may carry a higher inherent risk of breaches of decent working conditions. KBN enters into agreements with reputable companies that hold the relevant authorisations (e.g. cleaning companies authorised by the Norwegian Labour Inspection Authority) and it monitors its suppliers in respect of the working conditions and pay of their employees and subcontractors. KBN uses the Norwegian state’s standard agreements, which include provisions relating to decent working conditions for its suppliers’ employees, as well as its own contractual requirements on the safeguarding of human rights and decent working conditions.

KBN hires in IT consultants exclusively from reputable companies in Norway and Sweden whose employees are employed at companies that operate orderly working conditions in accordance with the provisions of the Norwegian state’s standard agreements. The inherent risk of breaches of employee rights and human rights is assessed to be low.

Our monitoring of suppliers uncovered no actual breaches in 2023.

KBN is moving to new premises in August 2024. KBN will terminate and replace a number of agreements with a higher inherent risk as part of this move. This applies to canteen services, cleaning services, the procurement of office furniture, the procurement of fabrics such as curtains, and the procurement of office supplies. KBN has consequently been particularly focused on assessing potential new providers of these services and on setting requirements for them in the form of appropriate qualification requirements and assessment criteria, as well as on ensuring the inclusion of contractual terms on the safeguarding of fundamental human rights in the supply chain and mechanisms for monitoring suppliers.

With regard to diversity and equality, we have been particularly focused on this in our procurement of legal services. As part of KBN’s entry into framework agreements for legal services, criteria relating to diversity and equality have been actively used as assessment criteria during the award process, and we closely monitor our suppliers in relation to this matter in our annual follow-up meetings and also by running mini bidding competitions between our framework agreement providers. KBN has a target of expanding this focus to its procurement of other consulting and IT services where the matter is particularly relevant.

Further work

In 2023, KBN worked on updating its procurement framework. An important measure on which KBN worked was separating out its contractual terms for the safeguarding of fundamental human rights in its supply chain into a separate PDF document so that its procurement staff can more easily ensure that the contractual terms are included in agreements including in instances where an agreement is based on a supplier’s standard terms. Another important measure on which KBN worked was centralising KBN’s agreement archive in SharePoint. The aim of centralising the agreement archive was to ensure that all documentation relating to agreements is readily available and so that whistle-blowing functionality and other technical functions can make it easier for procurement staff and agreement owners to monitor providers. The work is expected to be completed during the course of Q3 2024.

Own employees

KBN is committed to ensuring that all its employees have good working conditions. It seeks to have an inclusive culture in which all employees have the same rights and opportunities and are treated with respect. KBN does not tolerate bullying or harassment of any kind, or discrimination or harassing behaviour. KBN’s employee handbook provides practical information relating to the employment relationship and describes how KBN systematically works to create a satisfactory working environment.

KBN has a working environment committee, which is an independent, decision-making and advisory body concerned with the collaboration between employer and employees at KBN. The main function of the Committee is to ensure KBN has a fully satisfactory working environment. The Committee held regular meetings in 2023 and carried out a risk assessment of health, safety and the working environment, as well as a preventative workplace inspection. No accidents or serious injuries were recorded as having occurred during working hours or in connection with journeys for work purposes or to or from work. No accidents or injuries were reported to the Norwegian Labour Inspection Authority. In December 2023, a preventative workplace inspection was carried out that focused on matters including the working environment, discrimination, harassment and sexual harassment. The results of the inspection were good. Dilemma training relating to sexual harassment, discrimination and whistle-blowing procedures has been provided for individual groups of employees.

More information on how we work on equality and preventing discrimination is available in our Statement on equality in our 2023 Annual Report

Lending to customers

KBN has developed a model for classifying individual municipalities’ climate risk, which is integrated into KBN’s assessments of its customers’ creditworthiness. Going forward, KBN will work on expanding the climate risk model to include other types of ESG risk, and it will form part of discussions with customers.

In 2023, KBN mapped the proportion of its customers that have internal control procedures, including in respect of conflicts of interest, business ethics, whistle blowing, and the assessment of the risk of financial criminality. KBN has also incorporated into its discussions and monitoring of customers questions regarding the requirements they impose on their suppliers and how these are monitored, specifically in relation to procurement and building and construction projects. In 2024, KBN will follow up on this in its discussions with customers with the aim of creating greater awareness among its customers.

Counterparties and liquidity management

KBN has a strategy for its liquidity portfolio that also takes into account ESG-related risk, and has guidelines, exclusion criteria and systems for regular ESG-based and norm-based research (NBR) screening of the liquidity portfolio. The exclusion criteria cover companies operating in tobacco, alcohol, cannabis, gambling, pornography and controversial arms. NBR involves researching counterparties’ involvement in alleged or confirmed breaches of international principles and standards, such as human rights, employee rights and environmental protections. The ESG rating of counterparties is a traffic-light evaluation system for environmental, social and governance factors, with KBN monitoring counterparties placed in the yellow category and excluding those placed in the red category.

Remediation and compensation

It has not been identified that KBN has caused or contributed to breaches of fundamental human rights or decent working conditions in its own supply chain, its own activities or at its business partners.

If it is found that KBN has directly caused or contributed to breaches of fundamental human rights or decent working conditions either in its own activities, its own supply chain or at its business partners, it will implement measures such that those responsible for any such breach rectify the situation and implement compensatory measures.

Communication and transparency

We will be transparent regarding the due diligence carried out in our supply chain and by our business partners, and will report on the relevant measures and challenges by means of our reports and responses to enquiries. For more information on KBN’s work on sustainability, see our annual report, which is available on our website.

KBN has an information channel on its website that individuals can use to contact KBN with enquiries regarding the Transparency Act. In 2023 we received two enquiries regarding requests for information. Both enquiries were answered within the deadline stipulated by the Act.

Below is KBN’s report on the work it carried out in 2022, as required by Section 5 of the Act.

Embedding and organisation

During the year, the duties imposed by the Transparency Act to carry out due diligence and to report on this work, were incorporated into KBN’s general guidelines for sustainability. The guidelines were approved by the Board of Directors of KBN.

The Chief Executive Officer of KBN is responsible for the conduct of KBN’s work on sustainability. The CEO determines the detailed guidelines for sustainability, the organisation of the work and the allocation of responsibility within the management structure.

Work carried out in 2022

Over the course of 2022, appropriate procedures were developed for the practical implementation of the due diligence requirements, including how the due diligence will be carried out, what information will be required, the need for routine monitoring, the need for channels/procedures for receiving and processing enquiries, and procedures for carrying out remedial measures.

KBN has carried out due diligence assessments of its suppliers and business connections. This work has identified that KBN, as a financial institution serving customers in the Norwegian local government sector, is exposed to only a small extent to suppliers of products and services that might represent material risk of breaches of employment rights and human rights in general.

KBN has in any case implemented a number of measures to ensure compliance with employment rights and human rights by participants in its supply chains. KBN’s General guidelines for procurement include a stipulation that “Procurement processes must be arranged so that they contribute to promoting KBN’s goal of sustainable business operations in accordance with the general guidelines for sustainability. This means that procurement must contribute to reducing damaging environmental impacts and to promoting climate-friendly solutions where relevant. Procurement must promote respect for fundamental human rights and employment rights, equality and diversity, ethical conduct and social responsibility. KBN will not use suppliers that are involved in corruption or money laundering. Procurement must be carried out in such a way as to ensure that KBN has reasonable oversight into the use of subcontractors by suppliers and their subcontractors, and that KBN’s sustainability objectives are promoted throughout the supplier chain”.

KBN’s standard terms and conditions for its contracts with suppliers incorporate a number of requirements relating to employment rights and human rights. These contracts impose duties on our suppliers which include:

• Recognising their social responsibility, including their responsibility in respect of the climate and environment, diversity and equality and social responsibility, not only for their own company but also for their subcontractors and business partners.
• Respecting fundamental human rights and ensuring decent working conditions.
• Undertaking, whether in the supplier’s own right or through a middleman, not to offer any person an improper advantage or service in order to achieve an advantage or influence a public sector employee or any other third party in carrying out their duties.
• Working actively to reduce their climate footprint.
• Being transparent about paying taxes and other payments to the authorities in every jurisdiction in which the supplier carries out business.
• Reporting annually on their work on social responsibility

In addition, KBN has produced a separate statement setting out its expectations of suppliers which stipulates that KBN expects all suppliers of goods or services to KBN to work systematically with sustainability, and contribute to solving society’s social, economic and environmental challenges.

KBN has established an internal procedure to receive and process any requests for information it may receive in order to comply with its duty to provide information. The “Contact us” section of KBN’s website provides information on the email address to be used for any enquiries pursuant to the Transparency Act. KBN received two enquiries in 2022, and it replied to both of these in accordance with the stipulated timetable.