Are there any themes that you expect social bonds to address more effectively in the future?

Bruning: ‘We are seeing a shift from a relatively narrow focus on climate transition towards a broader approach that also centres on a just transition and social outcomes. In addition, interest in biodiversity is growing. Whilst this is not exclusively relevant to social bonds, the broadening of the sustainability agenda does present opportunities for this market.’

Veldmeijer: ‘Biodiversity does indeed offer opportunities. Furthermore, themes such as food security, health and sustainable food production are becoming increasingly intertwined. These topics are often associated with green bonds, but at the same time have a social dimension. These themes will play a greater role within the social bond market in the future.’

Bos: ‘The impact of AI on employment could become a point of discussion in the social bond market in the future, but it is not yet widely reflected in the frameworks. AI can lead to higher productivity and lower costs for businesses, but at the same time raises questions about the future of jobs and labour markets. How do we ensure that the economic benefits of AI do not come at the expense of employment or social cohesion? I expect we will see this topic featured more frequently in the documentation of social bonds in the coming years.’

Byatt: ‘AI is both an opportunity and a risk. Differences are already emerging between groups that do and do not have access to advanced AI solutions. Consider, for example, differences between students from affluent and less affluent families, or between different demographic groups. This creates the risk that existing inequalities will widen further. At the same time, this presents opportunities for social bonds. Technology companies could, for example, issue bonds specifically aimed at reducing digital inequality and promoting equal access to AI technology.

Zarzycki: ‘There is increasing transparency among multilateral development banks and supranational institutions. One example is the Inter-American Development Bank, which has issued a so-called Amazonia bond. In addition to the bond itself, the institution also publishes guidelines that can be used by other banks and investors. The bond specifically targets communities in the Amazon region and funds, amongst other things, vocational training, economic development and sustainable forestry. We see the same approach at institutions such as the CAF, the Development Bank of Latin America and the Caribbean – originally known as the Corporación Andina de Fomento – which have issued bonds focused on children, young people, education and social development. By reporting transparently and drawing up clear guidelines, these kinds of institutions raise the standard for the entire market. This ultimately contributes to better impact measurement and stronger reporting.’

How can green and social bonds actually reinforce each other, and how can a combined approach lead to more tangible impact?

Zarzycki: ‘Green and social objectives are increasingly converging. Take a renewable energy project in an emerging market, for example. This is not just about the energy transition, but also about issues such as access to energy, employment, education and economic development. The same applies to drinking water projects. The environmental benefits are important, but the social benefits are at least as relevant. Our experience is that projects are more successful when this social component is explicitly taken into account. I therefore expect the market to continue to evolve towards integrated solutions in which social and green objectives reinforce one another.’
 

Projects that have both a green and a social component could become a key driver of growth in the future.

 
Five to seven years ago, the emphasis was mainly on achieving environmental objectives, whilst trying to prevent social harm. Is the focus now shifting towards actively creating a positive impact in both areas?

Bos: ‘I think so. As investors, we have an important role to play vis-à-vis issuers. We must make it clear that transparency, reporting and a clear description of social impacts are important for the market. If issuers of green bonds also provide insight into the social benefits their projects deliver, this could lead to a broader investor base and potentially more favourable financing terms. That is why engagement remains crucial. Through dialogue with issuers, we can contribute to further improving the market and to better integration of social and green bonds.

Can the issuance of social bonds by governments actually help to stimulate or accelerate social investment? Might a social bond framework force organisations to adopt greater discipline, set more precise targets and allocate resources in a more targeted manner, given that the proceeds must be specifically earmarked and the impact measured?

Bos: ‘This remains partly a chicken-and-egg question. Ultimately, transparency is the greatest strength of the “use of proceeds” model. The question of whether issuing a social bond in itself stimulates additional investment is more difficult to answer, but I do see many positive side effects. For instance, it raises awareness within organisations. People start to think more explicitly about social and sustainable spending. Furthermore, we see – particularly in emerging markets – that governments and companies which are the first to issue social bonds often set an example.’

Bruning: ‘Additionality is always a somewhat trickier concept when it comes to public expenditure, as the expenditure in question was often already planned. Nevertheless, a social bond framework ensures that issuers must define their target group, apply clear categories and report on the impact achieved. This significantly improves the quality of the information provided, which is extremely valuable to the market.’

How do you view the future of the social bond market?

Bos: ‘I’ve been pleasantly surprised by developments in Europe. Several new issuers have entered the market this year, whilst many thought that virtually all potential European issuers were already active. I also expect further growth in social bond issuance in emerging markets.’

Byatt: ‘Where I see a great deal of potential is in the combination of climate adaptation and social impact. It is precisely projects that have both a green and a social component that could become a key driver of growth in the future.’

What are your expectations for the social bond market following the introduction of a potential EU taxonomy for social criteria?

Veldmeijer: ‘Just as the European standard for green bonds provides a framework of reference, a social taxonomy could serve as a kind of quality standard. At the same time, independent analysis will always remain necessary.

Bos: ‘I expect it will be difficult to define universally what constitutes a social objective, as standards and priorities vary greatly between countries and societies.
 

If you define impact very strictly and place great emphasis on additionality, then the private market may seem attractive.

 
Bruning: ‘An EU taxonomy is, in itself, a useful tool for creating greater standardisation and transparency. At the same time, many social issues fall primarily within the remit of Member States. So, politically speaking, this is a tricky subject and I see little chance of an official EU taxonomy being introduced in the short or medium term.’

Do you see any new opportunities for social bonds that currently fall outside the standard categories of the ICMA framework?

Bruning: ‘I don’t see any urgent need for entirely new categories. Rather, I expect the market to develop further towards increasingly specific themes within the existing categories.’

Byatt: ‘In general, I find the current ICMA framework broad enough to address most forms of social inequality and social challenges.’

Zarzycki: ‘I see opportunities primarily in new applications of existing frameworks. Take, for example, the reconstruction of areas affected by conflict. Should a sustainable peace agreement be reached in Ukraine or in parts of the Middle East, for instance, this could lead to significant demand for social financing for reconstruction, education, employment and social development. In addition, we are seeing an interesting development around so-called debt-for-nature swaps. It is conceivable that similar structures could emerge for issues such as food security or education, whereby funds are made available at national level for specific social objectives.’