“Social bonds”: those responsible funds that respond to the crisis

The social bond market reached 100 billion euros in 2020 Photo Credit: Getty Images

They are called “social ties”. These bond funds have the special thing about financing projects with a social calling. They have attracted a great deal of interest with the Covid-19 crisis, the detentions and the partial unemployment schemes that have been introduced all over the world, especially in Europe.


  • Record amount

  • Difficult to quantify performance

Record amount

40 billion euros: this is the colossal amount of the program to issue “social bonds” or “bonds with a social calling”, issued by the EU alone in 2020 after the first Covid-19 crisis. 19. By the end of 2020, the market for these bonds reached a total of EUR 100 billion, ten times more than the year before. A direct consequence of the health crisis, the various inclusions and the short-term working arrangements that have been put in place across Europe. “Social bonds” are used to fund operations in the areas of health, employment and the fight against poverty.

These bond funds, issued by states, local authorities and even companies, belong to the family of ESG (Environmental, Social and Governance) bonds, which have been very successful in recent years. “Social bonds” are intended to fund specific social projects, aimed at very specific population groups. At the top of the applications are the so-called essential benefits: education, health, but also financial benefits such as unemployment insurance or child benefits. They represent more than 40% of these uses. Next come projects with access to affordable housing (35%) such as the construction of social housing and final job creation (28%). The fight against Covid-19 has also been added to the list of approved uses from 2020, significantly increasing the market for these bonds for a social purpose.

The majority of social bond issuers remain the states or local authorities, who thus seek to fund their policies through innovative mechanisms. The Walloon-Brussels Federation of Belgium thus raised 500 million euros in June last year by issuing its own social bonds. Investors’ appetite for these “social bonds” has once again not been rejected: subscription offers have reached 1.4 billion euros, almost three times the desired amount. It even seems that they are again attracting investors who had avoided the conventional bond market.

Difficult to quantify performance

The selection criteria for social bonds are defined by the International Capital Market Association (ICMA), in its principles for social bonds. ICMA first assesses them on the basis of four key elements: the use of funds, of course, but also the process of evaluating and selecting the projects funded, the management of the funds and the reporting.

Despite these criteria issued by ICMA, however, observers call for caution with regard to the use of these social bonds. In contrast to “green bonds”, the benefits of which are quantifiable (reduction in CO2 emissions, energy savings, etc.), the impact of the effectiveness of social bonds is more difficult to quantify. The social performance of a project financed by “social bond” is inherently qualitative rather than quantitative. Who judges the social effectiveness of a project, if not its beneficiaries themselves?

The risk of “social washing”, such as “green washing”, is therefore very real. Thus, we would see issuers take advantage of the boom in social bonds and their positive image without respecting their social demands. Thus, in July 2020, the ING Bank analyzed all the “pandemic bonds” issued at the height of the crisis, representing a total of EUR 237 billion. Of all these bonds, only 15% of them met social criteria, whereas 80% to 90% of green bonds actually met the criteria for green bonds.

The rise of green bonds is undeniable

This is the second big trend in bond funds: “green bonds” or “green bonds” are also on the rise. According to some specialists, in order to finance sustainable development projects, these “green bonds” could weigh no less than 800 billion euros by the end of 2021. Issued by both states but also societies and corporations, green bonds have the advantage of being more profitable for the investors who choose them.

Companies are cautiously getting into it

It is a French company which in 2018 was the first multinational to issue its own social bond. The agricultural food giant Danone has raised 300 million euros to fund projects aimed at research into nutrition, responsible agriculture and the liberation of populations. Since then, companies have been rare in “social bonds”. These must be devoted exclusively to social projects, the companies remain reluctant. However, a Swedish company that produces medical equipment has taken a social leap. Getinge thus issued a debt of one billion Swedish kroner or 94 million euros.

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