Green Bonds vs. Social Bonds: A Comparison of Issuance
Green bonds and social bonds are both part of the broader sustainable bond market, but they differ in their objectives and issuance volumes.
Use of Proceeds and Objectives
- Green Bonds: These bonds are used to finance projects with environmental benefits, such as renewable energy, clean transportation, and energy efficiency. They are guided by the Green Bond Principles (GBP) from the International Capital Market Association (ICMA).
- Social Bonds: The proceeds from social bonds are dedicated to projects with positive social outcomes, such as affordable housing, food security, and access to essential services. They follow the Social Bond Principles (SBP) also from ICMA.
Issuance Volume
- Green Bonds: Historically, green bonds have dominated the sustainable bond market in terms of issuance. In 2022, green bond issuances reached $487 billion, far exceeding the $130 billion for social bonds. Green bonds continued to lead in market share, representing about 60% of new issuance in the first half of 2024.
- Social Bonds: Social bonds have a smaller market share but still contribute significantly. In Q1 2024, social bond issuance was strong, though it slowed in Q2. Despite these fluctuations, social bonds remain crucial for addressing pressing social issues.
Market Dynamics
- Green bonds are well-integrated into the market, with investors often willing to accept slightly lower yields (a concept known as “greenium”) when they perceive environmental benefits.
- The social bond premium is not as clear-cut and often is not significantly positive, suggesting that investors view these bonds more conventionally.
In summary, while both types of bonds serve important sustainability goals, green bonds have consistently outpaced social bonds in terms of issuance volume and market recognition. However, both are vital for transitioning to a more sustainable economy.
Original article by NenPower, If reposted, please credit the source: https://nenpower.com/blog/how-do-green-bonds-compare-to-social-bonds-in-terms-of-issuance/
