Social bonds raised $147.7 billion in 2020, more than seven times the roughly $20 billion in 2019, according to Bloomberg data. This massive increase underscores their appeal as a potentially significant force for effecting social change such as the provision of more affordable housing, improved access to essential services and job creation.
Chart 1: Social bond issuance increased significantly in the first half of 2021 (in billion USD)
A Case for Social Connections – Gender Equality
While great strides have been made towards gender equality around the world – this is Goal 5 of the United Nations Sustainable Development Goals – this SDG is still far from being achieved.
The economic fallout from the pandemic has increased gender inequalities, particularly in terms of pay gaps and labor market participation. According to the UN, the pandemic has caused 25% of independent women to lose their jobs compared to 21% of men.
Academic studies have confirmed the link between economic development and gender equality. For example, a 2012 study found that women’s empowerment and economic development are closely linked. In general, gender inequality is higher in emerging economies than in advanced markets.
G20 countries, for example, score a median of 0.08 on the United Nations’ 2019 Gender Inequality Index, compared to 0.31 for major emerging markets with low per capita income. The index ranges from 0 to 1, with higher values indicating greater inequality.
Even in high-income countries, women’s participation and access to measured and remunerated economic activity remains below their share of the population. Mercer research found that 40% of the global workforce are women, yet only 7% of Fortune 500 companies are led by women.
There are unrealized economic benefits to reducing and closing gender gaps. A higher proportion of women in paid employment can increase economic output, while an increase in women’s incomes can boost consumption and household finances. Hiring more women can help offset the negative effects of an aging population.
A scenario where women participate in the global economy at the same level as men could increase annual global GDP by $28 trillion, according to a McKinsey study.
Social and gender ties can be an effective tool to promote gender equality. A recent example is IDB Invest’s issuance of a $122 million bond in Mexico to fund projects advancing gender equality and women in Latin America and the Caribbean.
Banco Davivienda issued Latin America’s first gender-focused social bond in August 2020 to fund loans to eligible women-led businesses in Colombia and low-income first-time buyers.
Social Bonds for Pandemic Relief
The pandemic has accelerated the growth of social finance. Since the start of 2020, social bonds have seen an increase in issuance volumes as the public sector and development agencies have turned to debt financing in response to the impact of Covid-19.
Between 2014 and 2019, a large number of social bonds were dedicated to affordable housing projects. Examples include Dutch public bank NWB’s $2.2 billion affordable housing issue and National Australia Bank’s $384 million gender equality bond.
Pandemic relief efforts have increased the number of social bonds focused on issues such as tackling unemployment and access to health care. For example, in May 2020, Unédic, the French employment agency, issued a €4 billion social bond followed by a second €4 billion bond a month later.
How growing awareness can contribute to social change
Beyond pandemic-related funding, there is an increase in social awareness among investors, businesses and governments.
Sovereigns, supranationals and agencies accounted for 80% of all social bond issuance between 2020 and the first half of 2021, but financial institutions, corporations and nonprofits are now expected to play an increasingly important role. more important in the market. The Ford Foundation, for example, issued $1 billion in social bonds in 2020.
Companies have issued sustainability bonds to support racial equality initiatives. Last year, Bank of America issued a $2 billion Equality Progress Sustainability Bond to advance racial equality, economic opportunity and environmental sustainability.
As the overall popularity of social bonds grows, we think it’s safe to assume that fixed income issuance related to women’s economic empowerment and addressing the underrepresentation of women will also grow. .
These instruments can be expected to have long-term positive effects for issuers and national/regional governments, as expanded opportunities for women can reduce operational and reputational risks and benefit economic growth and growth. social cohesion.
Regulatory developments such as the EU social taxonomy and the Sustainable Financial Disclosure Regulation (SFDR) are likely to increase investor confidence in the social bond market and increase capital flows into these bonds. This in turn could enhance the liquidity of social finance in debt capital markets.
All opinions expressed herein are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may have different views and make different investment decisions for different clients. The opinions expressed in this podcast do not constitute investment advice.
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