Perceived lack of investment products highlighted as the main barrier to social bond investing, according to a survey of more than 700 investment professionals.
Goldman Sachs Asset Management (Goldman Sachs) has this week published a survey of more than 700 investment professionals across 11 European markets on their attitudes towards social bonds.
The Investing in Inclusive Growth survey, which collated the views of 722 CEOs, heads of ESG investing and portfolio managers, among others, from investors such as insurers, pension funds, banks, charitable foundations and family offices, found that nearly two thirds of investors (65%) currently allocate to social bonds or are considering doing so.
Looking more closely, the survey revealed that 29% of respondents in Austria, Belgium, France, Germany, Italy, Luxembourg, the Netherlands, the Nordics, Spain, Switzerland and the UK already invest in social bonds, while a further 36% are interested in investing, which Goldman Sachs said underscored “the potential for further market expansion”.
The average share of respondents’ fixed income portfolios invested in social bonds was found to be at 14%, with Luxembourg at the bottom of the pool with 7% and Italy leading the charge with 19.4%. Of those respondents invested or interested in investing in social bonds, 45% plan to increase their investment in social bonds, 42% said they would maintain their allocation, whilst just 13% plan to reduce their exposure.
The potential social impact and internal investment beliefs on sustainability were given by investors as the top reasons for investing in social bonds, with the largest share of respondents (57%) saying they wanted to have a positive impact on underserved social groups, owing to a lack of quality access to essential goods and services, followed by helping people with disabilities (54%).
Of the themes investors want to target through social bond investing, access to affordable basic infrastructure such as water, sanitation and public transport was the most popular (70%), followed by food security and sustainable food systems (63%) and access to essential services such as healthcare and education (55%).
Very few investors (12%) had no preference as to the social theme they preferred to target, which Goldman Sachs said indicated “that social bond investors come to the asset class with a clear impact agenda.”
Increase in social bond issuance
The survey also pointed to the COVID-19 pandemic as having pushed governments around the world to ramp up their social bond issuance “to finance programs designed to protect public health and mitigate damage to their economies”.
According to the report, a total of 50 social bonds were issued in pre-pandemic 2019, which more than quadrupled to 227 just a year later, with social bonds representing a €464bn market by the end of 2022.
Nevertheless, the perceived lack of investment products as well as a lack of diversification in the social bond market across characteristics such as currency, sector and region, topped the list of barriers to investing in social bonds highlighted by respondents. Other barriers, including a fear of ‘social washing’, a lack of transparency and insufficient knowledge about social bonds, followed in close third, fourth and fifth place.
“At present, only a small number of managers offer a dedicated social bond fund, but we believe the market is now large and diverse enough to make social bonds a viable complement to investors’ existing fixed income exposure,” said Bram Bos, global head of green, social and impact bonds at Goldman Sachs Asset Management. “The market’s growth potential will make social bonds increasingly attractive to a wider range of investors over time. The opportunities offered by social bonds should earn them a place in any well-diversified portfolio.”