Green bonds have dominated when it comes to the issuance of ESG-labelled bonds, but confidence in social bonds is growing, according to a bond research director.
Social bonds experienced a boom in 2020 and 2021, says Pietro Sette, GSS bond research director at MainStreet Partners, a sustainable investment adviser. Albeit on the back of negative events, Sette adds it was an opportunity for the social bond market as well as social bond fund managers, both existing and potential.
“We’ve seen quite a few launches of social bond funds recently, which shows that the industry is starting to have more confidence in social bonds,” says Sette. “But I think diversification has to be at the forefront of these discussions.”
Indeed, while figures from the Environmental Finance Bond Database and S&P Global Ratings show that social bond issuance increased in 2020 and 2021 as a result of the pandemic, 2022 saw this decline.
“Today we’re looking at around $500bn (£400bn) equivalent of social bonds outstanding,” says Sette. “This is the same size that the green bond market had in mid-2019. So it’s quite a small market, if you think about how much time has passed.”
As well as being a relatively smaller market, figures from Climate Bonds Initiative show that French social security provider CADES was the largest issuer of aligned social bonds in the first half of 2023, accounting for 30 per cent ($19.9bn) of the volume.
For social bond investors seeking a broader spectrum, Sette suggests also considering sustainability bonds. These are defined by the International Capital Market Association as bonds where the proceeds will be exclusively applied to finance, or refinance, a combination of both green and social projects.
Chloe Cheung is a senior features writer at FTAdviser
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