Social bonds in demand among impact investors

In Europe the market had grown to €464bn by the end of 2022

Professional investors have an appetite to back the ‘S’ in ESG, with nearly two-thirds currently allocating to social bonds or reporting being interested in doing so, according to a survey.

Investing in Inclusive Growth, commissioned by Goldman Sachs Asset Management, asked the views of more than 700 investment professionals across 11 key European markets. 

Respondents included chief executive officers, heads of ESG investing and portfolio managers from investors such as insurers, pension funds, banks, charitable foundations and family offices.

Social impact, and a commitment to sustainability, are the biggest motivators for investing in social bonds, the survey found.

The findings point to investors coming to the asset class with a clear impact agenda. Less than 12% of respondents had no preferred social theme for social bond investing.

Asked which target population they would seek to benefit through social bond investing, nearly 57% of respondents chose people underserved owing to a lack of quality access to essential goods and services.

The most popular social themes that can be advanced through social bond investing were access to affordable basic infrastructure, such as clean water, followed by food security and sustainable food systems.  

However topping the list of concerns about access to the social bond market was a perceived shortage of products.

Once seen as a niche area of fixed income, social bonds are entering the investing mainstream, driven in part by the Covid-19 outbreak.

Building on the foundation laid by green bonds, social bonds had grown into a €464bn market by the end of 2022, according to Goldman Sachs data.

During the pandemic governments around the world ramped up issuance to finance programmes designed to protect public health and mitigate damage to their economies. 

A total of 50 social bonds were issued in 2019, pre-pandemic. A year later that number had more than quadrupled to 227.

In terms of currencies, euro-denominated securities are by far the largest part of the market, reflecting active issuance by the European Union and key member states.

Bram Bos, global head of green, social and impact bonds at Goldman Sachs Asset Management, said: “At present, only a small number of managers offer a dedicated social bond fund, but we believe the market is now large and diverse enough to make social bonds a viable complement to investors’ existing fixed income exposure.

“The market’s growth potential will make social bonds increasingly attractive to a wider range of investors over time. The opportunities offered by social bonds should earn them a place in any well-diversified portfolio.”