The social advisor to the Threadneedle (Lux) European Social Bond fund has released its fourth Annual Social Impact Report as part of the fund’s annual disclosure to investors. The report assesses the degree to which the investment strategy’s impact objective to support more inclusive and sustainable development in Europe has been achieved.

Launched in 2017 as Europe’s first mainstream, fixed income social investment offering, the Threadneedle (Lux) European Social Bond fund is a partnership between Columbia Threadneedle Investments and INCO, who acts as the social advisor.

In producing the annual report, INCO assesses portfolio holdings according to the bonds’ alignment to the Sustainable Development Goals (SDGs) and their social performance rating (high, medium, low) by outcome area and geography. The investment projects’ impact reporting, transparency and relevant impact evidence are also scored using standards such as the Impact Management Project.

Overall, in the 12 months ending June 2021, the fund held 194 issuers, through 323 bonds, from charities, government agencies, supranationals, NGOs, universities, social housing providers and corporates targeting seven outcome areas, aligned with the UN sustainable development goals. The fund increased the amount of capital invested in bonds with a strong social focus (rated A) to 32.7% of the fund value, well above the target of 25%. Investment in lower social outcomes (ranked C3-C4) decreased from 23.5% to 13.7% compared to the previous year.

New issuance in response to the Covid-19 pandemic, so-called “pandemic response bonds “ became prevalent in the fund over the period. Examples of such bond issuance include:

• An $8bn sustainability bond issued by the International Bank of Reconstruction & Development to help member countries expand laboratory capacity, invest in detection equipment, train health workers and resolve supply constraints.
• A $750m social (vaccine) bond issued by the International Finance Facility for Immunisation for funding to the Global Alliance for Vaccines and Immunisations’ core immunisation programmes and its COVAX Advance Market Commitment scheme, which pools funding to purchase Covid-19 vaccines for participating countries.

The fund investments’ impacts by outcome area were split as follows:

• Economic regeneration and development (42% of the fund’s investments) – 40 tons of CO2 emissions were avoided and more than 18m MWh renewable energy provided
• Health & welfare (15%) – financed more than 109,000 hospital beds; supported care facilities for 1.86 million patients and funded 36,000 researchers and scientists
• Access to services (15%) – financed the supply of internet connectivity to 88,458 homes in rural areas
• Employment (11%) – supported the creation or preservation of more than 650,000 jobs and funding 22,500 micro, small and medium enterprises
• Affordable housing (9%) – financed 131,000 social homes and financing the supply of 529,230 households with 100% renewable energy
• Community (3%) – 3.7 million individuals or families given access to social benefits
• Education and Training (1%) – supported more than 248,000 students through academic or professional education.

Simon Bond, manager of the Threadneedle Lux) European Social Bond, said: “Over the course of last year, we have continued to invest in organisations and bonds delivering and enabling tangible social impact. It has been particularly fascinating to watch the quick and efficient bond market response to one of the most pressing social challenges of our time. This has presented our fund’s investors with an opportunity to support an inclusive and sustainable recovery from the Covid-19 pandemic, while at the same time generating returns on their investments. The developments over the last few years also reflect the growth of the ‘S’ within Environmental, Social and Governance investment - social bond issuance more than doubled year on year in 2021. There will be plenty more opportunities to put investments to work for social good, and I look forward to continuing to manage the fund in this way.”

Jean-Michel Lecuyer, Chairman of the Social Advisory Panel and Managing Director of INCO, said: “Since 2020, the fund’s social investment strategy has taken place in a particularly unique and exceptional context, due to the COVID-19 pandemic. Many states, supranational organisations and even banks have used these relatively new tools – the Social Bonds Principles were created in 2017 – to offer financial markets the opportunity to contribute to the enormous financing needs in the economy as well as the health and social sectors. This resulted in an extraordinary growth of social and sustainable bonds issuance over the last couple of years, while the issuance of green bonds, which constitutes the other major category of the fund’s investments, also continued to grow in a context of increased awareness of the climate crisis urgency and the collapse of biodiversity in the world. We’ve seen exponential growth in green and social bond issuance, which amounted to nearly $700m over the first 8 months of 2021. This is already significantly more than over the entire year of 2020 which amounted to $500m.”