Summary
A “use of proceeds” bond is a type of bond where the proceeds from the bond issuance are earmarked for specific purposes. This contrasts with general obligation bonds, where the proceeds can be used for any purpose as determined by the issuer. The specific use of proceeds for these bonds is typically outlined in the bond’s prospectus or offering statement, providing transparency to investors about how their funds will be used.
There are various types of use of proceeds bonds, including but not limited to:
Green Bonds: These are used to finance projects with environmental benefits, such as renewable energy projects, pollution prevention, sustainable water management, and climate change adaptation.
Social Bonds: Proceeds from these bonds are used for projects with positive social outcomes, such as affordable housing, education, healthcare, and employment generation.
Sustainability Bonds: These combine elements of both green and social bonds, financing projects that have both environmental and social benefits.
The use of proceeds bond structure ensures that investors are aware of the impact of their investments, aligning investor’s funds with their values or mandates, especially for those interested in responsible or impact investing. It also allows issuers to attract a broader base of investors, particularly those looking for investments that achieve specific environmental, social, or governance (ESG) objectives.
Social Bonds
What are Social Bonds?
Social bonds are fixed income securities whose proceeds are earmarked to finance or re-finance new and existing social impact projects, especially for identified target populations such as low-income groups, unemployed, or otherwise vulnerable.
Social bonds have financial characteristics similar to those of conventional bonds—such as a range of maturities, credit quality, and the same credit profile as traditional bonds from the same issuer.
As an important source of financing for the transition to a more inclusive economy, social bonds can complement investors’ fixed income portfolios.
Components of Social Bonds
Use of Proceeds: Social Bonds finance Social Projects with clearly defined social benefits, detailed in the bond’s legal documentation for transparency and security.
Project Evaluation and Selection: Issuers must outline the social goals, selection process for projects fitting the eligible categories, and criteria for eligibility and risk management of social and environmental impacts.
Management of Proceeds: Proceeds or an equivalent amount must be tracked in a dedicated manner, ensuring alignment with the issuer’s social project financing, backed by formal internal verification.
Reporting: Issuers are required to annually update on the allocation of proceeds, detailing the projects funded, amounts allocated, and their anticipated impact. For confidentiality or when dealing with numerous projects, reporting may be generalized or aggregated.
Social Bond Example
Examples in the Social Bond Principles include women, aging populations and vulnerable youth, the unemployed and undereducated, people with disabilities and those who are underserved owing to a lack of quality access to essential goods and services.
Following the conflict in Ukraine, which led millions to seek refuge, Poland received notable support from the Council of Europe Development Bank (CEB). The CEB provided a €450 million loan to Poland in June 2022 to aid in reimbursing the costs of emergency and social support for the refugees, covering housing, education, healthcare, and employment.
To fund these efforts, the CEB issued social bonds, raising substantial amounts dedicated to refugee integration in key areas like affordable housing, healthcare, and education. This initiative underscores the role of social bonds in addressing urgent social needs and illustrates the increasing investor interest in bonds with a clear social impact. Through these investments, contributors can directly support vital services for those impacted by crises, aligning their portfolios with their social impact goals.
Sustainability Bonds
What are Sustainability Bonds?
Sustainability bonds are financial instruments designed to fund projects that have a positive impact on both the environment and society. Unlike green bonds, which are exclusively for environmental projects, or social bonds, which focus solely on positive social outcomes, sustainability bonds combine elements of both to finance initiatives that achieve environmental sustainability while also addressing social concerns.
Data Sources
https://www.climatebonds.net/market/social-sustainability-bond-database-methodology
SnS Database Methodology
The approach taken in this methodology seeks demonstration of ambition from social and sustainability bond issuers. The requirements for inclusion will be tightened over time.
Step 1: Identification of labelled social and sustainability debt
Step 2: Use of Proceeds analysis
Step 3: Key information and SDG mapping
Social Bonds
What are Social Bonds?
Social bonds are fixed income securities whose proceeds are earmarked to finance or re-finance new and existing social impact projects, especially for identified target populations such as low-income groups, unemployed, or otherwise vulnerable.
Social bonds have financial characteristics similar to those of conventional bonds—such as a range of maturities, credit quality, and the same credit profile as traditional bonds from the same issuer.
As an important source of financing for the transition to a more inclusive economy, social bonds can complement investors’ fixed income portfolios.
Components of Social Bonds
Use of Proceeds: Social Bonds finance Social Projects with clearly defined social benefits, detailed in the bond’s legal documentation for transparency and security.
Project Evaluation and Selection: Issuers must outline the social goals, selection process for projects fitting the eligible categories, and criteria for eligibility and risk management of social and environmental impacts.
Management of Proceeds: Proceeds or an equivalent amount must be tracked in a dedicated manner, ensuring alignment with the issuer’s social project financing, backed by formal internal verification.
Reporting: Issuers are required to annually update on the allocation of proceeds, detailing the projects funded, amounts allocated, and their anticipated impact. For confidentiality or when dealing with numerous projects, reporting may be generalized or aggregated.
Social Bond Example
Examples in the Social Bond Principles include women, aging populations and vulnerable youth, the unemployed and undereducated, people with disabilities and those who are underserved owing to a lack of quality access to essential goods and services.
Following the conflict in Ukraine, which led millions to seek refuge, Poland received notable support from the Council of Europe Development Bank (CEB). The CEB provided a €450 million loan to Poland in June 2022 to aid in reimbursing the costs of emergency and social support for the refugees, covering housing, education, healthcare, and employment.
To fund these efforts, the CEB issued social bonds, raising substantial amounts dedicated to refugee integration in key areas like affordable housing, healthcare, and education. This initiative underscores the role of social bonds in addressing urgent social needs and illustrates the increasing investor interest in bonds with a clear social impact. Through these investments, contributors can directly support vital services for those impacted by crises, aligning their portfolios with their social impact goals.