Corporate social and sustainable bonds: who’s behind them, and what do they achieve?

Corporates can be critical drivers of social change and impact – and so can capital markets: since Danone’s issuance of the very first corporate Social Bond in 2018 [1], we’ve seen a steady supply of corporate social and sustainability debt.

08 Nov 2023 . 3 mins

In this new four-part series [2], we delve into different aspects of social and sustainability issuances, examining the corporate issuers behind the debt, the social projects they support, and the populations they aim to uplift. We’ll also look at future trends in the social and sustainable bond market.

Slower adoption of social bonds among corporates

Financial institutions and sovereign entities have traditionally been at the forefront of this financial realm, while corporations have tended to tread more cautiously. A primary reason for this is the complexity involved in identifying and managing social initiatives that align with the diverse operations of corporations across various sectors.

Financial institutions often have a more streamlined focus on specific social and sustainability goals, while corporations need to carefully select projects that align with their core business operations, often resulting in a more measured approach.

Furthermore, corporates issuing these types of bonds usually aim to make an impact externally (for example supporting specific communities) rather than internally (i.e. diversity of organisations).

Corporate social and sustainable bond issuers – sector diversification

Source: NatWest

Real estate and healthcare issuers constitute half of the market

Looking at issuers’ industries, the majority belongs to the Real Estate sector (27% of supply) and particularly include non-profit entities such as housing associations. Together with healthcare issuers, they constitute half of the market.

The reason behind this lack of sector diversity is the challenge for corporates to identify a sufficiently large pool of eligible assets for a benchmark size social bond – or even to define a sufficiently large category to be able to move from a green to a sustainable Use of Proceeds (UoP) format.

Investors hope for change in this regard, pointing to the fact that – apart from real estate and healthcare issuers – corporates in the energy and utility as well as telecommunications sectors are equally well-positioned to issue social bonds due to their inherent social mission, which often involves providing essential services like energy access and digital inclusion – as highlighted in our What ESG Investors Want Webinar: The ‘S’ of ESG.

American corporates leading the way

Nearly half of the social and sustainable bond issuers in our sample size originate from the United States. This does not come as a surprise, given the significant political and social movements in the country in the past three years, such as for example the Black Lives Matter movement, shaping the country’s socio-cultural landscape, and, as a result, spurring US corporates to engage with social initiatives that can help address those pressing societal concerns.

Corporate social and sustainable bond issuers – geographic diversification

Source: NatWest

Having looked at the “who” behind sustainable debt, we’ll be looking in more detail at the social projects funded by these bonds in our next article in this series: from affordable housing to healthcare and socioeconomic empowerment, we investigate the real-world impact of these financial instruments.

References

[1] Danone social bond report

[2] NatWest analysis - for this article we have examined a representative sample of 26 US and European corporates who issued social and sustainability bonds between 2018 and 2022.

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