Social Connections – A Tool to Effect Positive Social Change

Social bonds raised $ 147.7 billion in 2020, more than seven times the roughly $ 20 billion in 2019, according to Bloomberg data. This massive increase underlines their appeal as a potentially important force for effecting social change such as providing more affordable housing, improving access to essential services and creating jobs.

Chart 1: Social bond issues increased sharply in the first half of 2021 (in billions of dollars)

Source: Bloomberg

A plea for social links – Gender equality

Although great strides have been made towards gender equality around the world – this is Goal 5 of the United Nations Sustainable Development Goals – this SDG is still far from being achieved.

The economic fallout from the pandemic has increased gender inequalities, especially in terms of pay gaps and labor market participation. According to the UN, the pandemic has caused 25% of self-employed women to lose their jobs compared to 21% of men.

University studies have confirmed the link between economic development and gender equality. For example, a 2012 study found that women’s empowerment and economic development are closely linked. In general, gender inequality is higher in emerging economies than in advanced markets.

G20 countries, for example, have a median score of 0.08 on the 2019 UN Gender Inequality Index, compared to 0.31 for major emerging markets with low per capita income. The index ranges from 0 to 1, with higher values ​​indicating greater inequalities.

Even in high-income countries, women’s participation and access to measured and compensated economic activity remains below their share of the population. Mercer’s research found that 40% of the global workforce are women, while only 7% of Fortune 500 companies are headed by women.

There are unrealized economic benefits to reducing and closing the gender gap. A higher proportion of women in paid employment can increase economic output, while an increase in women’s incomes can boost consumption and household finances. Employing more women can help offset the negative effects of an aging population.

A scenario in which women participate in the global economy at the same level as men could increase annual global GDP by $ 28 trillion, according to a McKinsey study.

Social and gender links can be an effective tool to promote gender equality. A recent example is IDB Invest which issued a $ 122 million bond in Mexico to fund projects advancing gender equality and women in Latin America and the Caribbean.

Banco Davivienda issued Latin America’s first gender-focused social bond in August 2020 to fund loans to eligible women-led businesses in Colombia and low-income first-time buyers.

Social obligations to relieve the pandemic

The pandemic has accelerated the growth of social finance. Since the start of 2020, social bonds have seen an increase in issue volumes as the public sector and development agencies have turned to debt financing in response to the impact of Covid-19.

Between 2014 and 2019, many social bonds were dedicated to affordable housing projects. Examples include the US $ 2.2 billion issue of the Dutch public bank NWB for affordable housing and the US $ 384 million gender bond from the National Australia Bank.

Pandemic relief efforts have increased the number of social ties focused on issues such as tackling unemployment and access to health care. For example, in May 2020, Unédic, the French unemployment agency, issued a social bond of 4 billion euros followed by a second bond of 4 billion euros a month later.

How Growing Awareness Can Help Social Change

Beyond pandemic-related funding, there is an increase in social awareness among investors, businesses and governments.

Sovereigns, supranationals and agencies accounted for 80% of all social bond issuance between 2020 and the first half of 2021, but financial institutions, businesses and nonprofits are now expected to play an increasing role. most important in the market. The Ford Foundation, for example, issued $ 1 billion in social bonds in 2020.

Companies have issued sustainable bonds to support racial equality initiatives. Last year, Bank of America issued a $ 2 billion Equality Progress Sustainability Bond to promote racial equality, economic opportunity and environmental sustainability.

As the overall popularity of social bonds increases, we believe it is reasonable to assume that fixed income issues related to women’s economic empowerment and tackling the under-representation of women will also be stepped up. .

Such instruments can be expected to have long-term positive effects for issuers and national / regional governments, as expanding opportunities for women can reduce operational and reputational risks and benefit growth. economic and social cohesion.

Regulatory developments such as the EU social taxonomy and the Sustainable Finance Disclosure Regulation (SFDR) are likely to increase investor confidence in the social bond market and increase capital flows to these markets. obligations. This in turn could strengthen the liquidity of social finance in debt capital markets.

All opinions expressed herein are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may have different opinions and make different investment decisions for different clients. The opinions expressed in this podcast do not in any way constitute investment advice.

The value of investments and the income from them may go down as well as up and investors may not get their original stake back. Past performance is no guarantee of future returns.

Investment in emerging markets, or in specialized or small sectors is likely to be subject to above-average volatility due to a high degree of concentration, greater uncertainty because less information is available. available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions).

Some emerging markets offer less security than the majority of international developed markets. For this reason, portfolio transaction, liquidation and custody services on behalf of funds invested in emerging markets may involve greater risk.

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