Why social bonds have become an important asset class

  • 21 April 2023 (5 min read)

While social issues are not new phenomena, recent events have brought them to the forefront in the public mind. Whether it is inequalities caused by the Covid pandemic, issues of access to reliable sources of energy or the soaring price of food, plenty of social challenges are there for people to see.  Add to this the negative impact that climate change is having on society, and it is little wonder that there is an increasing emphasis on social bonds.

For investors looking for an investment opportunity while also making a positive difference to society, social bonds may provide a direct option. Social bonds support the transition to a more sustainable economy through financing a myriad of projects related to employment generation, education or access to basic needs such as affordable housing and health care services.  The importance of these projects in the context of Net-Zero transition can be sensed by the recent concerns raised over job losses in fossil fuel industries or the devastation and loss caused by the increasing number, and severity, of natural disasters.

For companies and governments, the interest in social bonds is two-fold: meeting sustainable business objectives and supporting communities.  The EU’s SURE program, for example, was created to finance short-term employment and keep people in jobs during the Covid pandemic. It was financed through issuing €100billion of social bonds and helped about 31 million people in 2020 and around 2.5 million firms affected by the Covid-19 pandemic. This arrangement helped local communities while also saving Member States about €8.2billion in interest payments because of the favourable borrowing conditions offered by the EU and the average maturity of the loans being around 15 years.1

The social bonds market now vs 2019

With increasing public awareness of the issues that are now being faced not in far-away countries but, often, in their own communities, the relevance of these investments has grown. Social bonds are now more than just an esoteric impact investment; they offer opportunities for those looking to help and support the social aspect of moving to a sustainable economy.  This increased awareness and subsequent demand is demonstrated by the activity of social bonds in 2019 (pre-Covid) versus today. In 2019, there was $9bn of issuance for the year. The years following have all exceeded this figure, with 2021, in particular, reaching $158bn issuance2

Despite this increase, the social bond market is still relatively small and concentrated.  For asset managers, creating a social bond portfolio that provides enough diversification for investors is key, but remains challenging. Increasing sector and issuance figures are helping to widen the opportunity net. Likewise, while the majority of social bonds are issued by European issuers, the second-largest region is currently emerging markets. With a growing number issuing from Asia and the US, this demonstrates that social bonds have the potential to become a more global investment. The options for how investors access social projects is also expanding with US issuers particularly active in issuing sustainability bonds (combined green and social projects).

The range of themes in which a social bond may address has also diversified over the past years. For that reason, we think about social bonds as falling within three pillars: inclusion, empowerment, and health and safety. These pillars reflect key areas such as access to education, access to financial services and food security, and provide a basis for evaluating the impact social bonds have. This impact evaluation is an important differentiator as the key performance indictors (KPI) and transparency required to issue a social bond allows investors greater insight into the success and progress of their investments compared to a conventional bond.


Helping people navigate the intricacies of technology and finance in order to be better equipped to manage life’s daily tasks is one aspect of this pillar. The other main element of the inclusion pillar is housing and essential infrastructure. Social bonds can provide companies with a means of financing these projects. Vonovia, a German real estate company, issued two social bonds for the first time in March 2022 to invest in housing for low-income households. The proceeds were also put towards modernising housing so they were more accessible for elderly residents. These social bonds tie in with Vonovia’s business ethos as they have tended to have a lower average rent cost in order to provide accessible and affordable housing.  The annual report provides investors with details of the outcomes of these social bonds through outlined KPIs such as progress against their targets for the number of houses built or modernised, and the number of people provided with affordable housing.


Empowerment is a broad category from supporting budding entrepreneurs, to education and diversity. NatWest Group’s first social bond is an example of how a social bond can provide impactful loans for communities.  The group’s inaugural social bond in 2019 was linked to the bank’s c.£2.5bn existing lending to small and medium-sized enterprises (SMEs). This reflected their involvement in SME financing, especially with female entrepreneurs. The group reports annually on the allocation of proceeds and on the social benefits of the eligible loans so it is clear how many jobs have been created and how many SMEs have been supported through the social bond.

Health and Safety

The third pillar we think about consists of projects relating to healthcare solutions or wellbeing and safety. Motability is an example of how a company can use social bonds to reflect their business strategy while also providing people with a wellbeing solution. This UK company issued a social bond to finance or refinance vehicles, powered wheelchairs or scooters for customers that qualify for certain mobility allowances provided by the UK government. This project not only supports the health and wellbeing for people with mobility challenges but also reflects Motability’s business strategy. By having an ESG Oversight Committee they can evaluate the project and selection process principles, and therefore ensure that International Capital Market Association’s guidelines for social bonds are met. Alongside this, impact reporting is provided until there has been a full allocation of proceeds. Due to the nature of the business, companies such as Motability can offer metrics such as customer retention rates, affordability and customer satisfaction which all help investors assess the quality of the social bond.

Why social bonds are here to stay

Social bonds may offer a new solution to the age-old question of how to address social challenges: they provide transparency and outcome driven results that have not, historically, been available to investors for listed assets. The social bonds asset class still faces a concentration of issuers and limited sector diversification, however, there are ways to address those obstacles in order to still create relevant social impact strategies. By identifying issuers which contribute positively to UN Sustainable Development Goals and taking additional KPIs into account, investors have access to tangible data on how their investment is achieving their goal of making a positive impact.

Social bonds, we believe, are an important tool for investors looking for ways to contribute to the changes that are needed to ensure society keeps up with the transition to a sustainable economy.

References to companies and sector are for illustrative purposes only and should not be viewed as investment recommendations.

  • U291cmNlOiBBWEEgSU0sIEJsb29tYmVyZywgYXMgYXQgMzEgRGVjZW1iZXIgMjAyMg==
ACT range

Social bonds

Invest in health and safety, empowerment and inclusion.

Find out more

Related Articles

Fixed Income

Active US High Yield: A new frontier for ETFs

  • by AXA Investment Managers
  • 31 May 2024 (3 min read)
Fixed Income

Using short duration as a liquidity tool

  • by Nicolas Trindade
  • 27 May 2024 (5 min read)
Fixed Income

How to capitalise on euro credit opportunities in evolving markets

  • by AXA Investment Managers
  • 13 May 2024 (5 min read)


    This document / video is for informational purposes only and does not constitute investment research or financial analysis relating to transactions in financial instruments as per MIF Directive (2014/65/EU), nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalized recommendation to buy or sell securities.

    Due to its simplification, this document is partial and opinions, estimates and forecasts herein are subjective and subject to change without notice. There is no guarantee forecasts made will come to pass. Data, figures, declarations, analysis, predictions and other information in this document is provided based on our state of knowledge at the time of creation of this document. Whilst every care is taken, no representation or warranty (including liability towards third parties), express or implied, is made as to the accuracy, reliability or completeness of the information contained herein. Reliance upon information in this material is at the sole discretion of the recipient. This material does not contain sufficient information to support an investment decision.

    Issued in the UK by AXA Investment Managers UK Limited, which is authorised and regulated by the Financial Conduct Authority in the UK. Registered in England and Wales No: 01431068. Registered Office: 22 Bishopsgate London EC2N 4BQ

    In other jurisdictions, this document is issued by AXA Investment Managers SA’s affiliates in those countries.

    Back to top