Social Impact Bonds: From Counting Beans to Growing Beans
It's possible to do good - and do well
There is increasing interest in the ESG (environmental, social, and governance) philosophy of investing.
Some entities and institutions now are adding ESG screens to their evaluations of investments. In other words, ESG criterion now are, in some instances, joining traditional markers such as interest rates and credit risk.
One avenue of ESG investing is the issuance of social impact bonds.
“The purpose of social impact bonds goes beyond its financial component. The securities are intended to help align the interests of different entities – including governments, investors, social enterprises, and the general public – to develop effective solutions for public-sector problems.” (1)
“The municipal bond market is dominated by large institutional buyers like insurance companies, banks and mutual funds. Individual investors usually get the leftovers. But the city of Chicago broke through that glass ceiling (in January 2023) with a $160 million ‘social bond’ issue that attracted a swarm of individuals and households who want their money to do more than just earn tax-free income. In this case, the bonds’ proceeds are earmarked for a variety of urban social goals, including affordable housing, vacant-lot cleanup and the planting of 15,000 trees.” (2)
I daresay that social impact bonds hit a sweet spot.
They show that it’s possible to do good – and do well.
Sources:
(1) https://corporatefinanceinstitute.com/resources/esg/social-impact-bond/
(2) https://www.governing.com/finance/one-citys-intriguing-experiment-with-social-bonds
Background:
https://www.sustainalytics.com/esg-research
https://www.investopedia.com/terms/s/social-impact-bond.asp
https://illinoisanswers.org/2023/01/25/chicago-boards-the-social-bonds-bandwagon-and-gets-results/
“What is ESG Investing, and Why Do People Hate It So Much?” https://apnews.com/article/what-is-esg-investing-3a98b6f584357b8e10c31b1ff93ce4b6