Social bonds are similar to green bonds but raise funds exclusively to support new and existing projects with clear social outcomes. These social outcomes include programs for unemployed people and those living below the poverty line, as well as marginalized communities, including migrants and displaced persons, women and/or sexual and gender minorities, and people with disabilities. Social Bond Principles were published in 2017 and updated in 2023. These voluntary guidelines set out best practices for the issuance of social bonds, including information to be disclosed and how issuers are to report to stakeholders.
Sovereign social bonds have been issued by Ecuador (supporting decent and affordable housing) with a guarantee from the Inter-American Development Bank, and by Guatemala where proceeds are financing COVID-19 response efforts, health infrastructure improvements, and initiatives in food security.
While not readily apparent in these issuances, the 2023 Harmonised Framework for Impact Reporting for Social Bonds notes that projects supported by the proceeds of social bonds can strengthen the capacity of agri-food systems to address climate change and help vulnerable people cope with the impacts of climate change. In addition, projects that address basic infrastructure (drinking water) and food security and sustainable food systems (agricultural practices, reduction of food waste) could be designed to generate adaptation co-benefits; and climate adaptation considerations could be integrated into the design of relevant initiatives, such as by ensuring the climate resilience of new housing. Slight revisions to project designs for social projects and the addition of adaptation impact metrics could improve adaptation outcomes.
Current or potential adaptation-relevant sector applications:
- crop and food production – including agroforestry; livestock production; fisheries (marine, freshwater, and aquaculture); irrigation;
- water supply (infrastructure) – water storage; water harvesting; water management;
- disaster risk reduction – early warning and observation systems;
- other built environment and infrastructure – urban development; and
- social infrastructure – education; health facilities.
Additional insights:
- This is an emerging instrument, with the first social bond being issued in the United Kingdom in 2010.
- The majority of social bonds have been issued by the public sector.
- The Government of Ecuador was the first country to issue a sovereign social bond, in 2020.
Considerations for issuing social bonds:
- Bond issuances have been launched by governments, public banks, national development banks, multilateral development banks, corporations, and non-profit organizations.
- Bond proceeds need a robust pipeline of social projects to fund.
- Bonds need to identify specific target populations for social projects.
- Bonds are not appropriate for all borrowers/issuers, especially in countries that may not be able to take on additional debt.
- Social outcomes can be difficult to measure and track, and as of 2023, no social taxonomy existed.
- Guarantees may be needed to increase investors’ confidence in bonds issued in developing countries, such as the guarantee provided by the Inter-American Development Bank for the Guatemala issuance.
Adapted from the following sources:
Chen, J. (2022, April 12). Social impact bond (SIB): Definition, how it works, and example. Investopedia. https://www.investopedia.com/terms/s/social-impact-bond.asp
International Capital Market Association. (2023, June). Harmonised framework for impact reporting for social bonds. https://www.icmagroup.org/assets/documents/Sustainable-finance/2023-updates/Harmonised-framework-for-impact-reporting-for-social-bonds-June-2023-220623.pdf
International Capital Market Association. (2023, June). Social bond principles: Voluntary process guidelines for issuing social bonds. https://www.icmagroup.org/assets/documents/Sustainable-finance/2023-updates/Social-Bond-Principles-SBP-June-2023-220623.pdf