The growth in the breadth and depth of the social bond market is impressive, but there's still more to come, according to Columbia Threadneedle Investments
In 2016 the Social Bond Guidelines were published, hot on the heels of the 2014 Green Bond Principles. The guidelines paved the way for corporates to issue bonds where the proceeds would be ringfenced for purely social projects - these were labelled "social bonds". The social bond market subsequently saw some issuance, mainly from sovereigns, but it really took off during the Covid-19 pandemic (Figure 1).
Figure 1: green, social and sustainability bond issuance
Source: Bloomberg, Columbia Threadneedle Investments, as at 23 August 2023
Post-Covid we have seen a greater awareness of financing which targets social outcomes, and the breadth and depth of the labelled social bond market has steadily increased. Corporates are now issuing labelled social bonds, with banks among the most impactful social bond issuers: Intesa issued an inaugural $750 million social bond in May 2023 which relates to programmes aimed at alleviating or preventing unemployment stemming from crises, and relief from natural disaster and health or social emergencies; AIB has $1.75 billion of social issuance related to healthcare, education, social and affordable housing, as well as affordable basic infrastructure; and CaxiaBank has issued $5 billion since 2019 mostly relating to jobs creation and business loans.1
Indeed, the conversation has now switched from whether to issue a green bond to how to issue the right type of green, social or sustainability bond. Our engagement in this sector is targeted at increasing the number of issues in the social bond market.
Recognition of social issues in the wider labelled market
As well as social bonds, there are also green bonds which ringfence proceeds for green projects, and sustainability bonds which may fund both green and social projects. Within both these bond structures, however, we have seen improvement in the prevalence and awareness of social issues. For example, we have seen some first-time green bond issuers such as the Western Australian Treasury come to market with a commitment to report on the social co-benefits of its green projects2. We first saw this from the UK Treasury green gilt, whereby the use-of-proceeds is focused on green infrastructure3 and social co-benefits through the creation of green jobs.
The reporting around these bonds will improve the understanding of how green projects may produce social co-benefits such as job creation, improved transportation and more energy-efficient homes.
We have also seen an increase in sustainability-linked bonds (SLB) issued with social key performance indicators (KPIs). For example, the Chile government issued an SLB4 which included carbon targets and a commitment to improve the number of women in board positions to at least 40% in companies under the scope of the Financial Market Commission by 2031. This is not to say, however, that we have changed our view that the SLB market still requires significant improvements in thought and intent, particularly around the setting of stringent and challenging targets. But we are pleased that social KPIs are coming into play alongside the commonly used carbon emissions targets.
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