Solactive writes that with current developments and economic trends, such as the COVID-19 pandemic, increasing inflation rates, and energy prices, social projects around affordable housing, infrastructure and health systems are getting more important.
In the last few years, the firm writes, it was difficult to find investment opportunities in this space, but the market for social and sustainability-themed bonds is growing. Using the Social & Sustainability Bond database by the Climate Bonds Initiative (CBI), Solactive launches the Solactive Global Social and Sustainable Bond Index, offering a standalone strategy for the ‘S’ in ESG. Alongside green bonds, social and sustainable bonds offer a way of investing with impact in a traditional asset class.
Almost a decade ago, Solactive launched the world’s first green bond index, marking the start of its partnership with CBI. Several launches of green bond index variations followed over the years, serving as the basis for ETFs, amongst others, the firm says, announcing that it has expanded its range of labelled bond indices towards social and sustainable bonds, again building on the expertise of CBI, expanding its longstanding partnership.
The bonds selected for the index use their proceeds for financing either social or sustainability-related assets, projects, and activities. The index includes bonds issued by central governments, government-related and corporate issuers. It is rules-based, and market value weighted. The index has a broad focus which can be adjusted to match client specific needs and preferences for the index construction, the firm says.
CBI screens self-labelled debt instruments to identify social or sustainability-related securities. The screenings process includes external reviews and an analysis of the use of proceeds. The bonds have to be aligned with the core components of the principles and guidelines set by CBI. The social bond label includes bonds where proceeds focus on delivering positive social outcomes, e.g. affordable basic infrastructure and access to essential services like health and education. Sustainability bonds are a mix of green and social projects.
The cumulative bond issuance by the end of 2022 was more than USD630 billion for social bonds and more than USD670 billion for sustainability bonds. The market experienced a leap in 2020 when volumes increased by 380 per cent compared to 2019. In 2021 the volumes stayed at this level, while in 2022 new issuances slowed down by 30 per cent, still staying at a level of roundabout USD300 billion in that year.