A large portion of European investors are already invested or are about to invest in social bonds, according to a survey by Goldman Sachs Asset Management.
The survey incorporates the views of more than 700 investment professionals across 11 key European markets. The respondents include chief executive officers, heads of ESG investing and portfolio managers from investors such as insurers, pension funds, banks, charitable foundations and family offices.
A social bond (also known as a social benefit good bond) is a type of financial security that provides capital to the public sector to fund projects that will create better social outcomes and lead to long-term savings.
The expansion has been largely driven by the outbreak of Covid, when governments ramped up the issuance of finance programmes to protect public health and their respective economies.
In 2019, a total of 50 social bonds were issued, compared with 227 in 2021. By the end of 2022, social bonds had become a €464 billion (£403bn) market, building on the foundations laid by green bonds, Goldman said.
The asset manager found investors’ own beliefs and the opportunity to create social impact were the main drivers pushing them to allocate to social bonds. More specifically, the ability to provide access to affordable, basic infrastructure – such as water, sanitation and public transport – were among the main reasons, with a big push towards emerging markets.
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Goldman found that improving diversity and inclusion and gender balance was the least cited reason for investing in social bonds. Yet investors noted there were still barriers to overcome in the social bonds market, with a perceived lack of product variety and premium topping the list.
Others said they were holding back allocating to social bonds due to low levels of market diversification. However, Goldman said as the social bonds space continues to develop, it expects these obstacles to diminish.
Bram Bos, global head of green, social and impact bonds at Goldman Sachs AM, added: “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.”
In November 2022, Goldman Sachs asset management arm (GSAM) was hit with a $4 million (£3.5m) fine after accusations of “policies and procedures failures” involving multiple funds marketed as ESG investments were raised by the US Securities and Exchange Commission (SEC).
