European investors keen to buy more social bonds: survey

NEARLY half of investors surveyed by Goldman Sachs Asset Management (GSAM) plan to put more money into social bonds, but they face a challenge due to a shortage of investment products targeting debt, according to a survey GSAM released on Tuesday (May 16).

Social bonds are used to finance projects that provide social benefits, such as building affordable housing and expanding access to healthcare and education.

According to GSAM, 29 per cent of the more than 700 investment professionals surveyed across 11 European markets between Dec 1, 2022 and Feb 1, 2023, already invest in the asset class, with a further 36 per cent interested in allocating capital to it.

Additionally, 45 per cent of respondents plan to increase their investments in the next 12 months, while 42 per cent said they would maintain them.

Launched in 2015, social bonds had grown into a 464 billion euro (S$675.1 billion) market by 2022 as public-sector agencies and development banks ramped up sales of these instruments after the Covid-19 pandemic, and there was strong investor demand, especially in Europe, the survey said.

The number of social bonds sold increased from 50 in 2019 to 491 last year.

Investments in the environmental, social and governance (ESG) sphere have largely focused on the environmental or “green” component. But the impact of rising inflation and sluggish growth on lower-income communities means there is now more interest in the social aspect, GSAM said.

Access to affordable basic infrastructure, such as clean water as well as food security and sustainable food systems, are the major themes that investors want to target, it added.

Survey respondents cited a shortage of opportunities as the top impediment to investing in social bonds, followed by concerns over the level of market diversification and so-called “social washing” – when borrowers make misleading claims about the impact of their projects.

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“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,” said Bram Bos, global head of green, social and impact bonds at GSAM, which oversaw more than US$2 trillion in assets as of March 2022.

“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.”

Investors also do not see social bonds offering lower borrowing costs than conventional peers, GSAM said. REUTERS