What’s happening: Social bonds have raised more than $163 billion this year, more than 10 times the $13 billion raised in 2019, according to a report from law firm Linklaters. The coronavirus pandemic has been the primary driver of the exponential growth in the asset class.
“Social bonds emerged as a useful tool in the fight against the pandemic by mitigating the socio-economic impact of the crisis,” said Linklaters capital markets partner Richard O’Callaghan.
The European Union was the largest issuer of social bonds, raising $47.3 billion across five deals. Other major fundraisers included the Asian Development Bank, as well as CADES and UNEDIC, bodies that manage France’s social security debt and unemployment insurance system respectively. The pair raised over $42 billion across 11 bonds.
Follow the money: At €17 billion ($20.8 billion), the European Commission’s inaugural Covid-related social bond will go towards its SURE program, which is helping EU member states pay the wages of millions of workers in order to protect jobs.
Investor appetite for these bonds has been enormous, as a growing number of asset managers incorporate environmental, social and governance (ESG) considerations into their investment decisions.
The SURE transaction attracted more investor interest than any other bond in history, according to Linklaters, with demand reaching €233 billion ($285 billion) —- nearly 14 times the amount the Commission aimed to raise.
It’s not just governments getting in on the action. Citigroup raised $2.5 billion from a single debt sale in October to build affordable housing in the United States, the largest-ever social bond from a private sector player, according to the bank.
Social bonds take after their more established cousin: green bonds, which have existed for more than a decade and finance environmentally friendly projects combating pollution and climate change. These bonds raised $227.6 billion this year across more than 680 sales, a 21% increase on 2019, according to Linklaters.
Growing investor appetite for these assets is helping finance to take more of a leading role in supporting improved outcomes for people and the planet. But whether or not all this money actually does make the world a better place is difficult to assess.
See here: Even the European Union acknowledges that its ability to report on the impact made by funds allocated through the SURE program will depend largely on the “quality and granularity” of the information supplied by member states, over which it does not have full control.
“The very fact that ‘social impact bonds’ are now a serious (albeit still small) and seemingly permanent feature of the global capital markets means that the sector needs to get serious about defining what ‘social’ means and how best to measure it,” Professor David Kinley, the chair in human rights law at the University of Sydney told me….
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