There are fewer new issuers in the social bond market this year, but regulation is encouraging bond issuers to consider the social element of their activities, according to Isabelle Vic-Philippe, head of Euro aggregate at Amundi.
Meanwhile, the green bond market is expanding more rapidly than the social bond market and is getting more diverse, said Vic-Philippe.
“Diversification is increasing quite fast in the green bond market, and the social bond market is this year a bit less supported by new issuers.
“But nevertheless, I think that regulation is pushing every issuer to consider the social aspects of everything they do and especially on the green financing, you have to take into account more and more the social aspect.”
Vic-Philippe cited the EU’s Corporate Sustainability Reporting Directive, which entered into force in January 2023.
According to the European Commission, the new rules will ensure that investors have access to the information they need to assess the impact of companies on people and the environment, and for investors to assess financial risks and opportunities arising from climate change and other sustainability issues.
Although Vic-Philippe noted less new issuers in the social bond market this year, she said the pandemic created a precedent for social bond issuance.
“I think the catalyst for diversification has obviously been the pandemic. The financial sector was already beginning to issue under a social bond format to finance some part of their loan book, and the pandemic was really a catalyst for that.
“When you’ve done the job to earmark the different loans with this angle, either green or social, then it’s something that you can do on a more recurrent basis.
“We see the financial sector still issuing under this format, based on the experience and everything they have put in place to be able to finance via social bonds.”
While there is less diversification in social bonds when it comes to the type of issuer, Vic-Philippe said that instead, diversification lies in the type of projects that are financed.
“The social projects are much more diverse than in the green market. There’s a lot of types of projects that you can finance.
“You can finance or support employment, healthcare, education, socioeconomic development and empowerment; you can also have some gender focus. There’s a lot of elements and a lot of themes that you can finance through social bonds.
“So maybe the diversification is not that much at the issuer level, but in terms of projects, it’s really diverse.”
Chloe Cheung is a senior features writer at FTAdviser
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