Bonds dedicated to raising money for social causes have seen a spike in issuance during the COVID-19 pandemic, according to research by European asset manager NN Investment Partners (NNIP).
The Netherlands-based group found that the social bonds market grew by 43% to €66 billion ($74.2 billion) in less than three months as organizations and governments have sought to support the economic recovery from the virus.
This amounted to approximately €20 billion since the beginning of April and included the largest social bond to date – a €4 billion fixed income instrument issued by a French unemployment insurance group. Most of the issuance has emanated from Europe, Japan and Africa, NNIP reported.
Most of the money raised from the new bonds went towards supporting small and medium sized companies to retain their workforces, the manager added.
Social bonds form a small but growing subsector of the rapidly expanding market for responsible investing themed bonds. In 2019, green bonds – securities targeting environmental causes – raised $254.9 billion globally, an increase of nearly 50% year on year, according to the Climate Bonds Initiative (CBI).
While Europe is currently the biggest market for both social and green bonds, American and Canadian issuers have been emerging in recent years. Fannie Mae was the biggest fundraiser on the green bond market last year, raising $22.8 billion, according to the CBI.
The city of Toronto raised C$100 million (US$73.5 million) in June this year through its first social bond, with the proceeds going towards housing and care facilities for vulnerable populations. The city established a “social debenture” program in May 2020, the first Canadian public sector entity to do so. It has also raised C$500 million through two green bond issues in 2018 and 2019.
San Francisco issued two social bonds in 2019, raising more than $165 million.
The Ford Foundation became the first US foundation to issue a social bond in June this year, raising $1 billion for “social justice and creative organizations” to aid non-profits that have been hit particularly hard by the pandemic.
Several investment management companies have launched funds dedicated to green and/or social bonds in the past few years as interest in the asset class has grown. Allianz Global Investors, PIMCO, Eaton Vance, iShares and Columbia Threadneedle all offer funds to US investors.
Columbia Threadneedle’s US Social Bond fund, launched in 2015, has $54 million in assets – predominantly municipal bonds – and has gained 2.3% since inception net of charges.
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