Yesterday saw the issuance of a record three social bonds which collectively raised €1.5bn, in signs the market is burgeoning.
Italian state bank Cassa Depositi e Prestiti SpA (CDP, not to be confused with the environmental body of the same name) placed its first social bond on Tuesday that will support small and medium-sized enterprises (SMEs) in economically deprived areas or areas hit by natural disasters.
The social bond raised €500m and was five times oversubscribed. It is a fixed rate, senior unsecured bond with a tenor of five years and an annual coupon (interest rate) of 0.75%.
Foreign investors bought more than 70% of the total issue, with a significant presence of SRI investors. Just under half, 49%, were investment funds and management companies, 31% banks, 13% insurance companies and pension funds, and the remaining 7% central banks and other investors.
Tanguy Claquin, Head of Sustainable Banking at Crédit Agricole, said that some of the investors from Europe were those looking to diversify from green to social bonds, “a lot of green bond funds are on the book,” he said.
Crédit Agricole was a bookrunner on the issue along with Barclays, Citi, HSBC, Société Générale and UniCredit.
Prior to launching the social bond, the CDP had developed its own Social Bond Framework, in line with the Social Bond Principles from the International Capital Market Association (ICMA), and inspired by the UN Sustainable Development Goals. It is a first for the Italian market.
Gianfranco Di Vaio, Head of Investor Relations at the CDP, told RI that it wants to play a role in promoting and increasing awareness of social bonds with investors. “After the issuance closed we had a lot of positive feedback and high interest for this market and supporting this kind of initiative. Particularly in Europe that is less developed than other parts of the union.”
He added that the social bond, for which Vigeo Eiris provided a second party opinion, would be the first of future issuances of this nature, along with green bond issuances.
Tuesday saw another inaugural issuance of a social bond with the African Development Bank (AfDB) placing a €500m, seven-year, transaction with a coupon of 0.25% annually. The social bond, which was also oversubscribed, will finance sustainable economic development and social progress in Africa.Like the CDP, the AfDB has also developed its own social bond framework in alignment with the ICMA Social Bond Principles.
Over half of the investors (50.9%) were central banks, followed by bank treasuries with 22.2%, asset managers with 15.8% and pension funds and insurers with 10.8%. Bookruners were Crédit Agricole, Goldman Sachs and HSBC.
Swedish pension fund AP2 and Mirova welcomed the social bond, which has a second-party opinion from Sustainalytics.
And Germany’s housing bank Bayerische Landesbodenkreditanstalt – known as BayernLabo – issued its €500m 10-year no-grow social bond yesterday, with the order book reaching €2.1bn. 85 accounts took the notes, with 37% SRI investors.
The coupon is 0.625% and BayernLabo has an explicit state guarantee, giving it AAA ratings from Moody’s and S&P. The social bond has a second-party review from oekom, and proceeds will be used to finance and refinance low-interest, subsidised loans for families – particularly young ones – to purchase, construct and modernise homes.
ABN AMRO and BayernLB were joint social bond structuring advisors and lead managers, while DZ Bank, Erste Group and Nord/LB also lead managers.
James Hay, investment analyst at investment advisor Mainstreet Partners, said it was optimistic about the social bond market and in time it could even outstrip the green bond market. “We are optimistic about the growth potential of the social bond market given that the use of proceeds under the Social Bond Principles are broader than those under the Green Bond Principles.”
Hay added that he was particularly impressed with the social bond issue from the AfDB, largely because of its reporting framework. “Disclosure is a hot topic at the moment – it’s how you bridge the gap between the final impact achieved and the use of proceeds. The AfDB framework has diverse impact metrics to report accurately what is achieved by use of proceeds.”
In related news, the World Bank has raised $2bn for a 10-year global benchmark bond for sustainable development and Australian insurer QBE this week placed a $400m “gender equality bond” which was more than 20-times oversubscribed.
RI also understands that HSBC is set to issue a sustainable development goal bond.
With reporting by Sophie Robinson-Tillett.