Social Bonds: The investment case
In the previous chapter of this insight, we looked at how the issuance of Social Bonds can help address specific societal issues, such as access to healthcare, infrastructure improvement, or the empowerment of previously underrepresented segments of the population.
Lloyds was the first UK bank to issue a bond where proceeds were allocated on the basis of social and environmental factors under its “Help Britain Prosper” plan. From the inaugural social bond issued in 2014, the bank was able to allocate GBP250 million to 1,468 qualifying loans1. These loans specifically targeted small and medium-sized businesses (SMEs), as well borrowers with a high social and environmental impact. Moreover, 96% of these loans were disbursed to borrowers coming from the country’s most economically-deprived areas, we view this as a key tenet of social bonds. Additionally, over GBP19 million of funds were allocated to 79 healthcare providers located in disadvantaged areas.
The first Lloyds social bond matured in 2018, but the company has moved on to establish its Help Britain Prosper strategy across the wider banking Group. Lloyds’ lending to start-ups and SMEs has increased by a cumulative GBP6 billion in the three years to 2020. The company has also committed GBP10 million to support the Advanced Manufacturing Training Centre (AMTC) over a 10-year period, facilitating the training of apprentices, graduates and engineers.
In April 2020, ShareAction – a charity that promotes responsible investment – also named Lloyds as Britain’s “greenest” bank. The report ranked the 20 largest European banks2 based on an environmental impact assessment, such as their willingness to fund carbon-intensive sectors and the level of engagement with key actors, also placed Lloyds as second best in the region.
World Bank’s 3-year International Bank for Reconstruction & Development (IBRD) sterling-denominated bond is an example of a social bond that we invested in at launch. It was issued in April 2020 to fund projects aligned with the UN’s Sustainable Development Goal 3: Good health & Wellbeing and seeks to lend support to global relief efforts in the battle against the COVID-19 pandemic – primarily in emerging market countries.
The first phase of funding focuses on emergency healthcare support by not only strengthening existing health systems, but also reinforcing disease surveillance preparedness to mitigate subsequent infection rate spikes. Co-ordinated emergency operations to fight the pandemic now span over 100 developing nations, home to approximately 70% of the worlds’ population.
For the second phase of its COVID-related support, World Bank is implementing means of mitigating the adverse economic impacts of the outbreak, thereby helping the private sector continue to operate and sustain jobs. The institution believes that adopting this approach will ultimately shorten the timeframe to economic and social recovery.
Established in 1944 to rebuild Europe after World War II, World Bank has a long history in supporting development and sees poverty alleviation as its raison d’etre (it already had health projects moving forward in 65 countries pre-COVID). As such, the organisation’s purpose is undoubtedly social in nature. All of its bond issuance support sustainable development across education, energy, agriculture, transportation and themes including environmental management and gender, to name but a few.
1. Lloyds Bank completes allocation of inaugural £250 million Environmental, Social and Governance bond (24/03/2015).
2. Banking on a Low-Carbon Future II – A ranking of the 20 largest European banks’ responses to climate change.