A Brief Summary

In 2020 social bonds raised more than $140 bn compared to $20bn in 2019. According to experts in ESG, the massive amount of money raised in 2020 indicates a potentially significant force for effecting social changes such as improving access to essential services, creating jobs, affordable housing facilities etc.

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According to Bram Bos, head portfolio manager of green bond at NN Investment Partners, there is overwhelming evidence that the demand for social bonds isn't going away anytime soon. "Social bonds have accounted for $224 billion in issuance so far in 2021." The trend is continuing, and we expect the social bond market to increase in the next years."

What elements might play a role in increasing interest in social bonds? Will regulation in the form of the EU's social taxonomy and the SFDR, for example, promote investor trust in the social bond market and increase capital flows to these bonds?

According to Bos, the EU and SFDR are presently focusing their efforts on green activities. "With the establishment of an EU social taxonomy, we foresee a greater focus on social issues and social relationships in the future, but it will take years before it reaches the same level as the United States."

Sandra Crowl, Carmignac's stewardship director, holds a similar viewpoint. She believes that compiling a list of eligible business activities that benefit society is a step forward because it will help determine the extent to which bond issuances finance social projects, as well as increase investor confidence, resulting in higher demand and lower financing costs for businesses.

"Investors must still embrace those issuers that are changing, and socially oriented bonds may be in low supply in the short run, just like the Environmental category." With more industry input and a three-month approval process in the EU Commission, Parliament, and Council, the Social Taxonomy will take some time to implement."

Social bonds are effective tools for promoting gender equality, economic fallout from the pandemic has increased gender inequality, particularly in terms of pay gaps and workforce participation. According to the UN, as a result of the pandemic, approximately 25% of self-employed women lose their job compared to 21% of men.

"Narrowing and correcting gender inequalities has unrealized economic benefits. An increase in women's salaries can raise consumption and household finances, while a higher percentage of women in paid employment can boost economic production. More women in the workforce can help mitigate the negative effects of population ageing."

Takhtayeva cites a recent McKinsey study that suggests that if women participate in the global economy at the same level as men, annual global GDP may rise by $28 trillion.

Takahtayava mentions IDB Invest, which is issuing a $122 million bond in Mexico to fund programmes promoting gender equality for women in Latin America and the Caribbean.

In August 2020, Banco Davivienda released Latin America's first gender-focused social bond to provide loans to qualifying Colombian women-led companies and low-income first-time female house buyers.

Goal 5 of the UN's Sustainable Development Goals is gender equality, but could social relationships play a larger role in achieving the UN's Sustainable Development Goals?

"Both investors and issuers want to emphasise what is essential to them and make sure they do good," Bos believes. We believe that investing in social bonds will expose investors to ten sustainable development goals that they would not have access to if they invested in green bonds."

He goes on to say that, even though the social bond market was virtually non-existent before 2020, he believes that social bonds are an effective vehicle for investors to direct funds into social enterprises. "Investors benefit from increased openness with social bonds."