The transformative power of Social & Sustainable Bonds

Fixed income investors seeking to generate positive impact while investing in liquid securities can now track the Solactive Social and Sustainable Bond Index. This index provides investors exposure to the “S” in ESG, by tracking bonds whose proceeds are intended for the build-up and maintenance of sustainable and resilient societies worldwide. Solactive AG asked me three questions on the transformative power of Social Bonds in addressing critical socio-environmental issues.

Solactive AG: Why are Social and Sustainable Bonds important?

Constance: Social and sustainability bonds play a vital role in offering financial solutions to environmental and societal needs. These bonds have traditionally proven highly effective in delivering social programs. These instruments are increasingly perceived as a substitute to conventional bonds, affording issuers an attractive cost of borrowing while yielding investors stable financial returns with the added benefit of a greater sustainability profile. As in any emerging asset class, and as seen in green bonds, setting standards to protect against social and rainbow washing is critical.

Solactive AG: What are examples of projects financed with these bonds?

Constance: Social bonds may focus on issues such as pandemic relief, education, affordable basic infrastructure/housing, and gender equality, while sustainability bonds may be used to finance the achievement of Sustainable Development Goals (SDGs), among others. The pandemic has led government to issue significant volumes of social debt, with levels peaking in 2021. While government-backed entities priced most of the social volume in 2022, financial corporations have recently joined this line of financing.

Solactive AG: Which development do you expect for the coming year(s) in this market?

Constance: Despite a 41% decline in issuance, linked to pandemic relief tailing off, social bonds still accounted for 15% of GSS+ volumes in 2022 at USD 130.2 bn. In the coming years, we anticipate an increase in sustainability bonds, combining green and social financing. Market growth is extremely important for a resilient climate transition to address both climate and societal needs.