Analysis

Hospital beds to housing: Projects financed by social bonds

Outcomes of social projects financed through bonds held by NNIP and Columbia Threadneedle

It has been all quiet on the social bond front recently, with issuance levelling off after the pandemic.

Social bond issuance was $56bn during the first half of this year, a 60% decline compared to the same period in 2021 according to Refinitiv, with issuance down 8% year-on-year.

Yet the need for financing for social projects remains high. With that in mind, ESG Clarity has rounded up a few of the projects funded by social bonds held in the NNIP Social Bond Fund and Threadneedle UK Social Bond Fund, and the outcomes they have achieved.

A sustainable Italian village

In Italy, certain groups are eligible for social housing, such as low-income households, elderly who are socially/economically disadvantaged and households subject to eviction.

To provide this housing, a bond in the NNIP Social Bond Fund financed €750m of social housing, generating an estimated 4,226 new social housing units that were on average 38% cheaper than market rental prices, Roel van Broekhuizen, portfolio manager green, social and impact bonds at NN Investment Partners said.

For example, a sustainable village was created for low-income families with children, young couples, and elderly. Besides creating affordable housing for these groups, the village aimed to create a sense of community and social interaction through common rooms, organised workshops, a common laundry room, a park, a public square with shops/a basketball court/a library, and day care centres to facilitate young parents. Several flats were designated as elderly residences, which included additional spaces for social relationship development.

Korean housing loans

In South Korea, housing prices have been rising rapidly and have become unaffordable for many inhabitants, van Broekhuizen said, and home ownership in December 2017 was down significantly in South Korea when compared with other regions.

Social bonds were issued by a quasi-sovereign entity to implement the housing welfare policy of the Korean government, he continued.

“The social bonds were used to offer long-term fixed rate amortised loan products to low/medium income individuals with insufficient access to affordable home financing. This increased their access to financing, while significantly lowering their repayment burden – the Korean market [continues to be] dominated by more expensive short-term floating rate mortgage products. To illustrate, a €1bn social bond provided 12,996 underserved households with access to affordable housing loans.”

291 hospital beds

Many social bonds focus on a mixture of social projects, van Broekhuizen said.

A bond in van Broekhuizen’s fund that was issued in 2020 focused on social housing, increasing access to essential services, and employment generation (i.e. SME financing).

By now, the bond has financed approximately €913m of social projects, which van Broekhuizen said:

  • Created an estimated 317 new jobs and preserved 21,002 existing jobs
  • Created 559 new social housing units and the renovation of 112 existing social housing units
  • Provided financing to 196 educational institutions, thereby contributing to the education of 140,324 students
  • Provided 94,123 individuals with health services and created 291 new hospital beds
  • Distributed 49,712 Covid tests, 36 million facial masks, and 13,054 Covid vaccines

Access to lending

Tammie Tang, portfolio manager of the Threadneedle UK Social Bond Fund, said the fund was “pleased” to invest in Yorkshire Building Society’s social bond, which lends to underserved parts of society.

“This includes the elderly, the self-employed and first-time home buyers, with such lending offered at preferential terms and rates,” she said.

For example, the bond offers 90% loan-to-value mortgages, with a maximum term of 40 years and maximum borrower age at term end of 80 years, while allowing up to four borrowers per mortgage application.

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Natasha Turner

Natasha was global editor at ESG Clarity, part of Mark Allen Financial, and a financial journalist for seven years. She has been shortlisted for Story of the Year and Investment Journalist of the Year...