Investments in Impact Bonds reach unprecedented levels.
The impact bond market, a sector dedicated to financing projects with a positive social or environmental impact, is witnessing a significant shift towards social bonds. Green bonds, which have traditionally held the largest share, are being challenged by the rapid growth of social bonds.
In 2020, a staggering $500 billion worth of impact bonds were issued globally, marking a 60% increase from the previous year. This trend continues in 2021, with the first quarter already surpassing half of last year's total issuance. The compound annual growth rate (CAGR) of social bonds since 2020 is around 38%, indicating a rapid expansion.
The growth in social bonds is driven by increased adoption by private sector financial institutions and corporates, with emerging markets receiving a significant share of the proceeds. The incorporation of gender-related Key Performance Indicators (KPIs) in Sustainability-Linked Bonds is rising, supporting the growth of women-focused social bonds.
Prominent sectors participating in issuance include private sector financial institutions and corporates, which dominate the volume of social bond issuances. Agencies, supranationals, municipalities, and structured products continue to issue sustainable debt, including social bonds. Emerging markets, despite a recent downturn in overall sustainable bond issuance in H1 2025, are actively preparing new labeled social and sustainability bonds supported by regulatory improvements.
The EU Taxonomy, which classifies and standardizes economically sustainable activities, is also playing a role in the growth of the impact bond market. The COVID-19 pandemic has led to a range of new products in the impact bond market aimed at mitigating its effects. The diversity of issuers for impact bonds has grown, with more issuance from real estate companies, Real Estate Investment Trusts, retail companies, and brand manufacturers.
The diversity of issuers and bonds in the impact bond market creates conditions for a wider range of investors. However, the market can still seem opaque and complex to new investors. Effective risk management and careful selection of investments are crucial in the impact bond market.
Two consumer goods companies, a leading shoe manufacturer, and a fragrance and cosmetics producer, have recently raised debt in the impact bond market, demonstrating the growing appeal of this sector to the private sector.
Looking ahead, it is predicted that 2021 will be another record year for impact bond issuance, with social bonds potentially making up a large part of that and growing in tandem with green bonds. The growth of social bonds is expected to continue, driven by increasing regulatory support and innovation in labeled social bonds.
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