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When we think about “ESG”, what probably comes to mind are concepts like “green finance” (because of the “E” for “environmental”). But this widespread acronym also refers to social action. We’ll tell you about it here.
In recent years, the public and private sectors have changed like never before. Products and services alone won’t cut it for consumers: they still want their needs for food, clothing, transport and other things covered; but more of them are moved by concerns about social progress. Therefore, more companies are looking to adopt “ESG” standards — “E” for environment, “S” for social and “G” for governance — in their dealings with stakeholders (i.e. employees, partners and customers, suppliers and broader society) to help the planet (e.g. reducing or neutralizing carbon emissions, recycling and preserving biodiversity); to practice institutional transparency and integrity; and to promote social welfare.
In finance, issuing special-purpose bonds is one of the many ways ESG is being embraced in finance. Like “green bonds” (debt instruments to fund eco-friendly projects), institutions engaging in sustainable finance can issue “social” bonds. Social bonds are debt instruments used to finance or refinance social projects whose purpose is to address a common problem and help those most vulnerable.
To be well structured and yield results, social bonds need to have a set and measurable purpose. If a social bond is issued to save jobs, buyers will need to know how many jobs it will help create (or save) and other facts. This is something that sets it apart from generic securities.
This article by Openbank (in Spanish) explains how green and social bonds are similar and different.
What do social bonds benefit?
With rising social concerns and a pandemic caused by covid-19, social investment has increased. In 2020 the European Union’s SURE programme issued a one-of-a-kind social bond based on market demands to help prop up employment (one of many areas social bonds can aim to benefit). Let's take a look at other areas that social bonds often support.
Some social bonds put funds towards things like saving or creating more jobs, preventing occupational risk and improving work conditions in a community. The social bonds issued by the EU aim to help people whose working hours have been cut or who have been furloughed, two situations aggravated by the health crisis.
Social bonds aim to raise funds for the ever-important healthcare sector, with projects for things like buying beds for hospitals, increasing open spots in assisted living facilities and acquiring medical supplies.
Social bonds can help more people get find housing or provide financial aid for renters.
Especially during an economic crisis, social bonds for utilities come in high demand among those most vulnerable. They include bonds to help households pay for electricity, heating, basic infrastructure (i.e. phone and Internet), water and gas.
Some social bonds aim to financially empower those most vulnerable or at risk of exclusion through various initiatives.
Some social bonds support projects to help certain groups further their studies or learn a trade, not just with financial aid, but also with books, desks, computers and other devices.
Some social bonds aim to promote culture through things like books, CDs, video games, e-books, audiobooks, podcasts, magazine and newspaper subscriptions, and tickets to the theatre, museums, exhibits, cinema, libraries and festivals.
How can I benefit from a social bond?
Applying for bonds as a beneficiary does not entail general requirements to meet or ordinary procedures to follow. It all depends on what the issuing bank stipulates and on local conditions, like the law. Still, some variables are particularly common. Some bonds only give aid to people within a certain age range, as with cultural or educational vouchers for young people. Others might be limited to a particular area, such as a town, region, country and supranational union, as with bonds for renters (which usually require census information). Also, an applicant’s personal household income, employment status (e.g. unemployment, reduced working hours, furlough), civil status and number of dependants (children or family members with a disability) can be determining factors.
When we’ve seen the requirements to apply for a bond and are sure we meet them, we can follow the application procedure in-person or remotely on a device that connects to the Internet, with all official documents that certify our situation.
