Friday Highlight  

How the bond market has an eye on the future

2) Danone’s social bond, March 2018

A key development in the social bond market came at the end of March, with the launch of the first corporate social bond by Danone, the French multinational specialising in dairy products, water, baby formula and nutrition products for expectant mothers.

It will focus significantly on funding the advanced medical nutrition business, supporting research and development. Ahead of the issue, we were able to engage with the company in order to learn more about its approach and how it would measure its results, meaning we were well positioned to make an investment when it came to market.

Figure 3: so many recent firsts

What next?

We expect sustainability issuance to continue to grow in popularity, in no small part forged by the UN SDGs. These have emerged as a guide for investing towards a more sustainable world for investors and governments alike, by signposting global development priorities (Figure 4).

As the HSBC bond highlights, fixed income products can help achieve these goals. Green, social and sustainability bonds, for example, present an opportunity to invest in a range of projects which, underpinned by rigorous standards and clear impact reporting, help promote and achieve the aims of the SDGs.

Bonds are a particularly effective tool for measuring impact precisely because there is the capacity and transparency to measure their outcomes directly. Furthermore, the openness to engagement, free dialogue and sharing of best practice is also a distinctive characteristic of this market.

ICMA recently published a high-level mapping of the principles of the SDGs, upon which Columbia Threadneedle Investments advised, and concluded that green, social or sustainability bonds were relevant to 15 out of the 17 SDGs.

In light of this, the EIB will launch its first sustainability awareness bond in the Autumn to specifically support the SDGs, with the proceeds to be used to finance projects in the water industry, and it will also seek to raise finance for health and education. 

Figure 4: the UN’s Sustainable Development Goals

Governments are also engaging with the private sector to mobilise capital targeted towards social and green projects, given that approximately $6trn a year will be needed between now and 2030 to meet the SDGs. 

Since 2007 both the iPhone and Tesla have demonstrated the characteristics of sustainability within their products, and while it has been rare to connect the England football team with longevity, the recent FIFA World Cup showed that even the most entrenched characteristics can change.

Certainly, 11 years on from the EIB’s inaugural green bond, the outlook for social impact investing looks as sustainable as the characteristics it seeks to represent.

Simon Bond is manager of the UK Social Bond fund at Columbia Threadneedle Investments