Which populations do social and sustainable corporate bonds target?

In the second article of our four-part series about the corporate social and sustainable bond market, we explored the range of social projects funded by corporate social and sustainable bonds, shedding light on their real-world impact. In this instalment, we take a closer look at the beneficiaries of these social initiatives i.e. the target populations.

14 Dec 2023 . 4 min read

Social bonds often target specific underprivileged populations. The International Capital Markets Association’s (ICMA) Social Bond Principles [1] encourage issuers to provide a clear rationale for selecting these target populations, demonstrating an understanding of the unique challenges and vulnerabilities faced by these groups. This could explain why the selected population is considered underserved or vulnerable, or by providing the income threshold used to define the target group. By providing this context, issuers can enhance the transparency and effectiveness of their social initiatives funded by their social bonds’ proceeds.

Several reasons underscore the importance of having a well-defined target population for a social bond. Firstly, a defined target population allows for measuring impact by establishing clear goals and metrics. This enables tracking progress, demonstrating social impact, and ensuring accountability to investors. Secondly, defining a target population enhances accountability and transparency in the use of funds. Clear identification ensures transparency in resource allocation and distribution. Thirdly, while there is no strict regulatory framework like the EU taxonomy for green bonds, as mentioned above, the ICMA’s Social Bond Principles encourage issuers to provide a clear rationale for selecting target populations. The evolving market is likely to see further development of regulations, including its definition of target populations.

A wide variety of stakeholders are benefitting from social initiatives of Corporates

As highlighted in our previous article, while, over 75% of the issuers in our sample opted for a targeted approach - directing their proceeds to one specific social bond project category – our sample does indicate that a wide variety of stakeholders have been on the receiving ends of these social projects. On average, corporate issuers in our sample have referenced 1-2 target populations in their social and sustainability bond reports or frameworks:

Figure 1: Target populations referenced in allocation/impact reports, and frameworks

Source: NatWest, Companies’ social and sustainable bond reports and frameworks

However, it's not so much about the number of target populations on the receiving end but about their ‘eligibility’ to benefit from social initiatives. Some corporate issuers in our sample have arguably less well-defined target populations such as ‘vulnerable customers’ or ‘vulnerable youth’ - providing clarity on exact thresholds would help avoid “socialwashing” accusations in this context.

As per figure 2, the main beneficiaries are labelled as marginalised communities, disabled / reduced mobility and low-to-medium income populations:

Figure 2: Target populations benefitting the most from issuers’ social initiatives

Source: NatWest, Companies’ social and sustainable bond reports and frameworks

Marginalised communities

Marginalised communities often face systemic barriers to accessing capital and financial services, which can hinder their economic development and opportunities for wealth creation. Efforts of organisations, such as the MacArthur Foundation and Eli Lilly, help to address these issues. The MacArthur Foundation's commitment to directing proceeds towards social entrepreneurs contributing to racial equality suggests a recognition of systemic barriers by these marginalised communities, while Eli Lilly's focus on supplier diversity indicates a proactive approach to promoting economic opportunities for women and minority-owned businesses.

Disabled / reduced mobility

Disabled individuals and those with reduced mobility often face significant challenges in accessing resources and opportunities, making them a natural focus of corporate social initiatives. Key issuers targeting this segment often stem from the real estate sector. For instance, Assura seeks to improve healthcare buildings to provide easy access to healthcare for disabled people, elderly, and those suffering from conditions such as dementia and autism. However, there are also issuers in other sectors, such as leasing/transportation (e.g., Motability) and education (e.g., Pearson with Connection Academy), demonstrating a broader industry interest in addressing the needs of this demographic.

Low-to-medium income

Likewise, for the low-to-medium income target populations, both the real estate sector and unexpected entities in the tech sector are actively targeting low to medium-income populations. The focus is on providing affordable housing solutions for individuals within these income brackets. This suggests a broadening trend where companies, regardless of their traditional industry, are recognising and addressing the housing needs of individuals with lower to moderate incomes.

Corporates as financial services providers

In certain cases, with the proceeds of corporate social bonds, companies can extend their role beyond traditional business operations and assume a role as “financial service providers”. For instance, corporate social bonds can provide target populations with access to funding for projects that can address disparities, such as small business development for instance. Case in point, Alphabet’s sustainability bond directed $148 million of proceeds to provide financing to small and medium-sized businesses focused on the black community [2].

Watch out for our next article on expected key trends in the social and sustainable bond market

In the last instalment of our series, which we'll publish at the beginning of 2024, we turn our gaze to the horizon. What lies in store for the corporate social and sustainable bond market going forward?

Note: Research was conducted based on target populations referenced in impact and allocation reports as well as frameworks as impact and allocation reports may not explicitly disclose the exact distribution of proceeds going to a target population.

References

[1] International Capital Market Association (IMCA): Framework for Social Bond Reporting June 2019 (PDF)

[2] Smart Energy Decisions: Alphabet Sustainability Bond Impact Report 2022 (PDF)

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