Social Bonds

A social bond is a bond whose proceeds are used exclusively to finance or refinance projects that address a social problem or produce a positive social outcome, usually for a defined target population. Typical uses include affordable housing, hospitals and healthcare, schools, job creation and lending to small businesses, food security, and access to essential services such as clean water or financial inclusion. Like a green bond, it is an ordinary debt obligation of the issuer: the coupon and repayment do not depend on the projects.

Social bonds are one of the use-of-proceeds or "labelled" bond types, alongside green bonds and sustainability bonds, which mix the two. Most follow the Social Bond Principles (SBP) published by the International Capital Market Association (ICMA). They are distinct from sustainability-linked bonds, where the money can be used for any purpose, and from the US "social impact bond", which is a pay-for-success contract rather than a tradable bond.

Imagine a town council that wants to build a health clinic in a poor neighbourhood. It borrows the money from residents and promises in writing that every penny will go to the clinic, then publishes a yearly note saying how many patients were treated. Lenders get their money back with interest whether the clinic is busy or quiet; what they gain is knowing where their savings went.

A social bond is that arrangement on a larger scale. A government, development bank, housing association or company sells bonds to investors, ring-fences the money for social projects, and reports on what was built and who it helped.

ICMA first published the Social Bond Principles in 2017, three years after the Green Bond Principles, and has updated them since; the latest edition is dated June 2025. They follow the same four core components as the GBP:

• Use of proceeds. Money goes to eligible social projects, such as affordable basic infrastructure, access to essential services (health, education, financing), affordable housing, employment generation including small-business finance and microfinance, food security, and socioeconomic advancement and empowerment.
• Project evaluation and selection. The issuer explains its social objectives, the target population (for example people living below the poverty line, excluded or marginalised groups, people with disabilities, migrants, the unemployed or underserved communities) and how it manages risks.
• Management of proceeds. Net proceeds are tracked and any unallocated balance is disclosed.
• Reporting. The issuer reports at least annually on allocation and expected impact, such as homes built, patients served or loans made.

Issuers are also encouraged to publish a social bond framework and obtain an external review. Many frameworks map projects to the UN Sustainable Development Goals.

Supranational and development institutions were early issuers, alongside public housing agencies and municipalities. The market grew sharply in 2020 as governments and development banks raised money to deal with the COVID-19 pandemic. The largest single programme was the European Union's SURE scheme, which supported short-time work and job-retention schemes in member states: between October 2020 and December 2022 the European Commission issued €98.4 billion of social bonds under SURE, making it the largest social bond issuer in the world. Banks issue social bonds to fund lending to small businesses or affordable mortgages, and some companies issue them for healthcare or education projects. The Islamic finance market has its own equivalent in social sukuk.

Buyers include pension funds, insurers and dedicated ESG bond funds, including those practising impact investing. Because most issuers are governments, agencies or large banks, much of the market is investment grade, and the credit rating is that of the issuer.

Social outcomes are harder to measure than environmental ones. There is no single metric like tonnes of carbon, so impact reports vary widely and can be hard to compare. Critics question bonds that refinance spending a government would have made anyway, such as routine health budgets, or that define the target population so broadly that it covers almost everyone. There is also a risk of "social washing", where the label is used to market ordinary debt. Unlike green bonds, social bonds have no EU legal standard comparable to the European Green Bond Standard, although the EU taxonomy discussions have considered a social taxonomy.

Supporters reply that the label channels investor attention to housing, health and jobs, encourages issuers to set targets and report on them, and broadens the investor base for public borrowers. As with any fixed income security, the investor's main financial risks remain the issuer's credit risk and interest-rate moves, not the success of the projects. Companies sometimes present social bonds as part of their corporate social responsibility work; investors can test that claim by reading the framework and later reports.

• ICMA: Social Bond Principles
• European Commission: SURE social bonds