Spanish government bank attracts ESG investors to new €1bn ‘social bond’

Spain’s state-owned Instituto de Credito Oficial bank says it has attracted a range of ESG investors to its first €1bn ‘social bond’ that will go towards providing loans for small and medium sized enterprises (SMEs).

Dubbed the ICO Social Bond, the three-year issue is aimed at providing loans at favourable rates to SMEs focused on employment creation or retention.

Proceeds will not go to companies that have potentially negative environmental or social impacts. For example SMEs involved in alcohol, tobacco or gambling won’t be eligible. The bond’s social credentials were assessed and certified by ESG research house Sustainalytics.

It attracted a mix including fund managers, insurance and pension funds, and banks, although their identities are not being disclosed. “The final book included 114 orders including more than 30 supporters of green and sustainability bonds across Europe,” ICO said.

Speaking to Responsible Investor, Antonio Cordero, head of funding and treasury at the ICO, said the main reason for issuing a social bond was to attract a “new investor class” interested in ESG. “By including this new feature we got traction,” he said. There was a European ESG focused roadshow to showcase the bond before it was issued.

“As an issuer, investor diversification is important for our fund strategy,” Cordero said. “Another important thing was to support Spanish SMEs as three-quarters of employment in Spain is in SMEs.”He said after the first year anniversary of the bond the ICO will produce an investor newsletter with information about how the proceeds have been used. It will also estimate the impact on job creation in Spain.

“We have also reached an agreement with Sustainalytics for a second opinion on the report. We are committed to engaging with investors and making them know how we’ve used the proceeds.”

Vikram Puppala, manager of advisory services at Sustainalytics, who was involved in assessing the bond, told RI that the firm evaluated the bond’s alignment with market best practices and norms such as the Green Bond Principles. It looked at the use of proceeds and fund allocation process, reviewed the reporting commitments and evaluated the bond’s positive social impact as well.

Cordero said going forward the ICO was likely to issue further social bonds. “The idea is that this won’t be a one-off transaction. The experience has been good with traction, visibility and investor diversification. We are delighted with the outcome and will be looking at the social impact asset class in the future.”

Credit Agricole Corporate & Investment Bank, Goldman Sachs International, HSBC and Santander Global Banking & Markets were joint-lead managers on the transaction. The Luxembourg-listed issue has an annual coupon, or interest rate, of 0.500%.