30 May WORLD ECONOMIC FORUM – HERE’S THE SECRET TO FINANCING A GREENER FUTURE
Enrico Lo Giudice, Research Associate
Sustainable investment is one of the biggest trends in financial services. More and more investors are becoming aware of their power to make a positive impact while earning healthy financial returns. Green bonds are perhaps the most well-known instrument in this category: over the last two years, their issuance has grown exponentially. But there are many other “thematic bonds”, as they are known. These bonds finance projects with a social theme, from food and education to social housing and healthcare. Thematic bonds are the fastest-growing category of sustainable investment strategies. They allow investors to use a traditional financial instrument to advance socially useful causes, such as reaching the United Nations’ Sustainable Development Goals. According to the Climate Bonds Initiative, $700 billion of thematic bonds were issued in 2017. To date, more than 400 issuers have issued thematic bonds in 30 currencies from 50 countries.
What are social bonds?
Social bonds are a type of thematic bond. They finance a broad range of projects that help society, for example in the areas of basic infrastructure, financial inclusion, food security, poverty alleviation, the reduction of inequality, and the promotion of gender equality.
2017 was a pivotal year in the social bond market. Total issuance tripled to $10.5 billion, numbering 25 social bonds. This is an encouraging figure considering that so far, 41 social bonds have been issued in compliance with the Social Bond Principles 2017 published by the International Capital Market Association (ICMA).
This year is seeing even stronger growth. Social Bond issuance reached $2.3 billion in the first quarter of 2018, from $1 billion during the same period in 2017. Among the highlights was Danone’s first social bond. The global food company’s issue has a 7-year maturity and a 1.00% coupon. It raised 300 million euros and attracted orders for over 700 million euros. The social bond will finance a variety of sustainable food and agriculture projects, such as providing support to farmers who avoid genetically modified crops, assisting communities affected by undernutrition, and funding micro and small businesses that promote healthy eating. Its success is an example of the transformative power of finance, and it shows how eager investors are to combine financial returns with a social purpose.
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