The number of entities bringing ESG-qualified bonds to market has increased significantly, which has also cast a spotlight on their sustainability credentials, according to a social investment intermediary.
Investing for Good co-founder Geoff Burnand, who links providers of capital with socially-focused entities in this space said the rise in ESG bond issues has been “dramatic”, and brings greater scrutiny of whether the terms of the bonds are robust enough to resist accusations of greenwashing.
S&P Global has predicted that global green, social, sustainable and sustainability-linked bond (GSSSB) issuance will reach up to $1tn (£780bn) this year.
GSSSB issuance exceeded $850bn last year, according to the Environmental Finance Bond Database and S&P Global Ratings. In 2022 green bonds accounted for over half of issuance (55 per cent), followed by social bonds (19 per cent).
When it comes to social impact, Burnand added that there is growing consensus on how it can be evaluated and integrated into financial data, analysis and investment processes.
“Impact covenants can be negotiated directly between the investor and the borrower, and it is also possible to create a time-bound link through the coupon to the borrower’s social impact,” Burnand said.
“These developments add an impact focus to the traditional construct of a bond and align the interests of social purpose organisations and mainstream capital. If this trend continues, we believe social bonds will help fill the funding gap required to meet the [UN's] Sustainable Development Goals and change millions of lives.”
The International Capital Market Association refers to social bonds as use of proceeds bonds, which raise funds for new and existing projects with positive social outcomes.
“Social bonds issued by charities, social enterprises and international NGOs can fit well into an ESG portfolio, and offer a point of differentiation for asset managers,” Burnand said.
Chloe Cheung is a senior features writer at FTAdviser
