Measuring Social Bond Impact
Keith Mullin
35 years: Capital markets editorial
Within the fourth video in this series, Keith discusses the key challenges with measuring the impact of social bonds, such as the long time lags associated with impacts of social projects and suggests investors have a role to play in offsetting this to an extent. This may come in the form of active investor engagement.
Within the fourth video in this series, Keith discusses the key challenges with measuring the impact of social bonds, such as the long time lags associated with impacts of social projects and suggests investors have a role to play in offsetting this to an extent. This may come in the form of active investor engagement.
Measuring Social Bond Impact
3 mins 1 sec
Measuring impact is a challenge for the Social Bond market. The Social Bond Principles are a valuable starting point for defining the product, but opening on how social a Social Bond is beyond the SBP’s remit. Green bonds that finance environmental projects can fall back on carbon emissions reductions over the life of a bond. For social bonds, it’s much more difficult to calculate the impact of a bond on poverty reduction or job-creation since there are so many factors at play.
Key learning objectives:
Outline the challenges of social impact measurement
Identify the role investors can play
What are the challenges of measuring social impact?
- Green bonds that finance environmental projects can fall back on carbon emissions reductions. It’s much more difficult to calculate the impact of a social bond on, say, poverty reduction or job-creation since there are so many factors at play
- Issuers list expected social impact benefits before a bond has been issued so impact can only ever be the result of modelling, with a lot of uncertainty and moving parts
- Social impact can take a long time to emerge; poverty-reduction doesn’t emerge overnight
- Investors need to take on trust that social projects will factor in all reasonable elements to hit targets and be clear that it may be impossible to truly determine impact
- The best social bond issuers can do is be transparent about the projects they’re financing, which target populations they’re reaching, and how many people are being reached
What role can investors play?
A critical part of the story is active investor engagement. Driving a positive social or environmental end-game and adding value is better achieved through active engagement with management than through social screening. To avoid cries of social-washing, investors should demand clear pathways i.e.:
- Impact assessments that define exactly what issuers want to achieve
- The metrics issuers have aligned against their bonds
- A formal commitment to create detailed impact reporting throughout the life of the bond.
Keith Mullin
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