The Rise of Social Bonds

The investment landscape has drastically changed in the past few decades, with decisions being made with far more social and environmental awareness. Investors are not just chasing returns, but also want to understand the impact of their capital, with the creation of a portfolio that incorporates sustainability, diversity and promotes financial inclusion.

Across the globe we are facing multiple issues, from inequality and poverty to an aging population. Investors play a huge part by steering capital into strategies that help improve social conditions. The most direct way would be to invest into a project directly, but many investors do not have the skill set to adequately conduct due diligence on the various investment opportunities available to them which have seen a growing interest over the past few years. According to Standard and Poor’s 2024 study on outstanding green, social, sustainable, and sustainability-linked bonds (GSSSBs), they have “rated over $2.6 trillion in outstanding GSSSBs, and maturities from April 2024 through 2028 have grown to $1.2 trillion. The growth in GSSSB issuance is leading to rising maturities, but they expect them to remain manageable.”

What are social bonds? A social bond are bonds that are issued by companies seeking to raise capital for new or existing projects in order to create a positive social impact.

There are many types of projects that can benefit from the use of proceeds provided by social bonds. These include but are not limited to: Affordable housing, Sustainable Food, Affordable infrastructure (water, sanitation, energy, and transport), access to essential services (healthcare, financial services, and education).  

Diversifying your portfolio: Most investors have a large weighting to traditional fixed income products. By replacing some of this exposure with social bonds, investors can make a measurable impact within their portfolio and is often associated with similar risk and return characteristics.

When deciding to invest in a social bond, investors should be careful to ensure that the proceeds end up where they are intended. The International Capital Markets Association (ICMA) has created a framework, called the Social Bond Principles, that provides investors with the peace of mind whether the issuer is working within the industry’s’ best practices, and investors should only consider bonds that are fully aligned with these principles.

Under the ICMA Social Bond Principles, the four key components are: Use of Proceeds, Project Evaluation and Selection, Management of Proceeds and Reporting.

LiveMore is a specialised non-bank lender, who is working tirelessly to make the retirement community aware that mortgage products do exist for them. It is their mission to drive positive change to create a fair and inclusive mortgage lending market. Millions of people aged 50-90+ years can afford a mortgage, however the industry does not recognise their wealth of life experience and refuses to lend to them.

Later life mortgage is the umbrella term or category that LiveMore falls under, a sector that they have won multiple awards since their inception in 2020. They provide a full suite of products, from traditional interest only mortgages designed for the 50-90+ years sector, to capital repayment mortgages and more recently the launch of equity release products.

They recently launched their first social bond which operates within the ICMA social bond framework and has been supported by a second-party opinion from ISS Corporate Solutions Limited, which has certified LiveMore’s mortgage portfolio as a socially sustainable investment. Alexandra Hansmeyer, LiveMore’s Head of Legal, feels that obtaining a second party opinion was paramount, as it provides investors with assurance that their social bond framework is credible and further ensures that the use of proceeds is aligned with the social bond principals.

Find out more with SDAX how social bonds, can diversify your portfolio and possibly provide double-digit yields.