‘It all comes down to people’

Info: CEB’s COVID-19 Response Social Inclusion Bond attracted record interest. How do you explain that?

SB: What I was impressed by was the speed of response, not only from an institution such as the CEB but from the market generally. We’ve seen something like €36.5 billion issuances so far to date addressing this. There has been a tremendous focus on the social, in a way that has never been seen before. And what I see is the bond market standing ready to respond to a social crisis.

Info: The CEB was one of the first movers when the social bond market was created and has been quick to adapt to the new situation by updating its framework. When you look at a potential investment what is most important to you?

SB: We are looking to follow the money through to its impact on society: where the money is going, the good it’s doing, the effect this will have on people. Reporting is also very important. That, to us, is impact, particularly through a new issue because that’s the time when the borrower spends the money in society. It’s when the impact occurs.

Info: Was the COVID-19 impact on the social bond market similar to the impact of the Paris Agreement on the green bond market?

SB: The Paris Climate Agreement is a longer-term strategy, addressing a specific issue that society and the environment faces. COVID-19 is an immediate danger that has come without any warning; addressing those issues requires quicker responses. COVID-19 has focused people’s minds on social issues in a way that has never happened before, and widening their focus from purely looking at the environment. As well as finding a vaccine, that need our focus. The pandemic has affected social cohesion, education and employment.

Info: What are your views on COVID-19-related issuances that are not aligned with ICMA social bond principles and the role of the social bond principles in supporting the growth of the market?

SB: We are big advocates of the social bond principles – we sit on the working party to help develop them. This gives us a set of parameters to see the subsequent growth in the market. In 2014 when we had the green bond principles we saw green bonds take off. In 2017 with the social bond principles, we saw a real taking off of social bonds. We now have a tremendous increase in the social bond issuance to the extent that it’s almost matching the green bond issuance in the year to date. Impact reporting is particularly important to us. That’s what makes the bonds that conform to the social bond principles stand out. Therefore we would always recommend that an issuer was conforming to the social bond principles.

Info: What is your analysis of social bond reporting and how do you view CEB social inclusion bond reports?

SB: The reporting is critical to show the evidence of the good that the bond proceeds are doing for society. And it’s quite different to measure social impact as opposed to environmental impact. For example, how do you measure the value of education to society? Or the importance of health to society? But these things can be reported upon and you can have these impact statistics. 

When I look at the CEB’s three annual social inclusion bond reports, some of the things I’m looking at the measurements that relate to society and ultimately to people. I look at 4,000 jobs created or the preservation of 40,000 jobs. Or it could be the number of housing tenants or university students who are benefiting from better facilities, but it all comes down to people.

Info: What role will the UN’s sustainable development goals (SDGs) play going forward? How do you include them in your own reporting?

SB: We think the UN’s SDGs are really useful and important: they’re a common language that we can use. We can use the 17 SDGs in a similar way as the Sharpe ratio, a concept which investors use to understand the return of an investment compared to its risk. A Sharpe ratio enables you to compare equity portfolio with a fixed income portfolio, and you can do the same with the SDGs – comparing direct lending, bond portfolios, property portfolios and equity portfolios.

We aim to map each one of the bonds that we buy to the primary SDG; in fact we actually map to the 169 targets that underlie the 17 SDGs. It’s vital that everything is mapped correctly and there’s clear evidence.

*This refers to the first CEB COVID-19 Response Social Inclusion Bond, issued in April. The Bank issued a second COVID-19 bond in June 2020.