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Social bonds – A better outlook


In this article:

    Since our update on social bonds in 2022, the market landscape for this type of sustainable bond has changed significantly: The global economy has weathered the COVID-19 pandemic, but now faces challenges such as high inflation, concerns about government austerity and pressure on the transition towards a greener, more inclusive and more equitable economy. Here we discuss recent developments.  

    Sustainable debt issuance slumped in 2022 for the first time ever, falling from a record USD 1.1 trillion in 2021 to USD 863 billion in 2022, in line with debt issuance volumes globally.

    Social bonds were hit hardest, with issuance falling by 41% and continuing to drop – albeit more slowly – in the first quarter of 2023 (see Exhibit 1).

    We believe it is important to highlight 2021 as an exceptional year for social bonds, with the pandemic spurring the mobilisation of vast sums as the authorities responded to job and income losses, amid other lockdown-related issues.

    What are social bonds?

    Social bonds finance activities that help address social issues such as inequality or access to affordable housing. The International Capital Market Association’s Social Bond Principles, dating back to 2017, provide voluntary process guidelines that recommend transparency and disclosure. They were updated recently.

    Since 2017, issuance of social bonds has taken off, recording a notable increase during the pandemic to fund spending on, for example, healthcare needs and employment protection.

    Several players dominate the landscape of issuers. French government agency CADES is the leading issuer globally. According to the publication Responsible Investor, CADES and the EU SURE programme currently account, respectively, for 32% and 33% of social bond issuance.

    Corporate issuers are entering the market, but progress has been slow.

    Based on first quarter 2023 data from Bloomberg New Energy Finance, 77% of outstanding social bonds has come from government-related issuers, 17% from financial institutions (e.g., banks) and the rest from non-financial corporates such as consumer staples companies.

    This likely reflects areas where social issues can be addressed directly. In manufacturing and services, tackling such issues directly is more challenging.

    That said, there are innovative bonds. One example is the EDF social bond. Proceeds are used to fund expenditures that support procurement from suppliers located in less well-to-do French regions. It can be seen as a deliberate socially minded effort by a non-financial corporate issuer.

    Impact investments

    Many investors are increasingly looking to allocate capital to credible impact investments –  funding activities that help achieve social objectives with a clear disclosure framework in place to prove their money is making a difference.

    However, as social projects can be diverse, ranging from affordable housing to job creation, harmonising and standardising metrics is difficult. Obtaining clear, granular data can be a significant barrier for investors to understand how their investments in aggregate improve social outcomes.

    Unlike green bonds where proceeds are typically used to help climate mitigation and it is possible to report the impact, for example in terms of avoided emissions, it can be difficult to aggregate the social impact given the diversity of the social projects funded and the fact that impact metrics differ from social issue to social issue.

    Nonetheless, the market is still relatively young and work in continuing on demonstrating the benefits from social bonds. The updated Harmonized Framework for Impact Reporting for Social Bonds published by ICMA this June should provide more clarity.

    ‘Social washing’

    Borrowing a term from environmental investment markets, investors are keen to avoid ‘social washing’ in their social bond investments. While the phrase can mean different things to different stakeholders, our definition is that there is no clear demonstration of how the proceeds are actually used to generate positive social outcomes.

    For example, social bonds financing highways that link urban settlements already well connected serve no clear positive social outcome.

    We use ‘ambition’, ‘specificity’ and ‘integrity’ as touchstones to avoid the risk of ‘social washing’ in our investments. Issuers should show how they intend to contribute towards social objectives, define specific target populations and social gaps, and reporting on how their use of proceeds helps these populations to close such gaps.

    We expect regulation to deal with ‘social washing’ in the future, along the lines of the EU’s proposed ban on greenwashing. 


    As investors increasingly seek to generate financial returns while making a positive contribution to society, we expect demand for social bonds to increase.

    However, for the label to maintain credibility and attract a higher volume of investments, we believe all social bond  issues must demonstrate ‘ambition’, ‘specificity’ and ‘integrity’.

    While we have seen volumes fall, we are optimistic about a rebound. Over the coming years, we expect the necessary regulatory landscape to develop, allowing the market to grow – we believe it is a market segment with a bright future.


    Please note that articles may contain technical language. For this reason, they may not be suitable for readers without professional investment experience. Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. This document does not constitute investment advice. The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns. Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions). Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.
    Environmental, social and governance (ESG) investment risk: The lack of common or harmonised definitions and labels integrating ESG and sustainability criteria at EU level may result in different approaches by managers when setting ESG objectives. This also means that it may be difficult to compare strategies integrating ESG and sustainability criteria to the extent that the selection and weightings applied to select investments may be based on metrics that may share the same name but have different underlying meanings. In evaluating a security based on the ESG and sustainability criteria, the Investment Manager may also use data sources provided by external ESG research providers. Given the evolving nature of ESG, these data sources may for the time being be incomplete, inaccurate or unavailable. Applying responsible business conduct standards in the investment process may lead to the exclusion of securities of certain issuers. Consequently, (the Sub-Fund's) performance may at times be better or worse than the performance of relatable funds that do not apply such standards.

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