Need to finance positive social change
To finance social progress, we need significant investments for decades to come. Social bonds offer an opportunity to fixed-income investors to have a greater social impact.
A bond is like a loan that you give to a government or a company. The difference is that the debt can be traded. As a bond investor, you will get a coupon, which is an interest payment. The interest rate will be paid by the issuer of the bond and can vary depending on markets, risks, and duration. In the case of a social bond, the use of proceeds - that is, how the firm, government, or organization intends to utilize the money raised from investors - should be solely dedicated to social projects.
Social bonds contribute to achieving the SDGs
The risk profile of social bonds is identical to that of a conventional bond from the same issuer, as is the structure. The main difference is that the issuer, when emitting a social bond, commits itself to use the money for projects with direct or indirect social benefits. Projects financed through social bonds can include affordable housing, health infrastructure, job creations or access to basic services such as electricity or internet.
Thus, investing in social bonds ensures that all your money will be used to finance projects with positive social outcomes, contributing to reach one or several SDGs (1, 2, 3, 4, 5, 8, 10 or 16). For example, to cope with increasing unemployment due to the Covid-19 pandemic, the European Union (EU) issued its temporary Support to mitigate Unemployment Risks in an Emergency (SURE). As part of this project, a social bond was issued to preserve employment as well as providing financial support to people who had been made redundant or whose working hours had been cut. As an instrument to help protect jobs and keep people at work, the EU SURE social bond directly contributes to SDG 8 “Decent work and economic growth”.
While there is yet no legally binding definition of what social bonds are, some principles and guidelines have been developed, such as the Social Bond Principles of the International Capital Market Association (ICMA).
How radicant selects social Bonds
The social bonds market has grown slowly over the past 10 years before skyrocketing in 2020. Since then, it seems to have stabilized at higher levels than prior to the covid-19 pandemic.
To make sure that our social bonds investments fund projects that truly contribute to the achievement of the SDGs, we invest in social bonds classified as "Social" on the ICMA database. The #SocialBond Principles recommend that issuers report on the use of social bond proceeds, and more and more issuers follow these guidelines.
In addition, many issuers obtain a second opinion for their social bonds from research agencies such as ISS ESG, Sustainalytics or Vigeo Eiris.