Social Bonds: Proceeds’ Investment and Social Premium

Investors’ desire to support sustainable transition has originated premiums known as greenium or socium, where green/social bonds pay lower yields vis-à-vis otherwise equivalent traditional bonds. However, while the greenium benefits from more issuances and a Green Taxonomy, fewer issuances and delays in the Social Taxonomy may expand social washing practices and undermine the socium. Using 157 social bonds (SBs) issued from 2016 to 2021, we start from classifying targets into Social Access & Empowerment, Social Health Protection, and Social Supply Side. Next, we employ OLS and multinomial logistic regressions to uncover the determinants which curb social washing and expand the socium. We reach three notable findings. (i) Irrespective of the issuer, the socium – which is on average 47 basis points – is larger for SBs targeting the Social Supply Side, where these bonds may be more easily standardized and subsequently less vulnerable to social washing. (ii) Regardless of the target, corporate SBs exhibit a smaller socium vis-à-vis SBs issued by public sector (PS) entities, where the latter issuers may be less prone to social washing. (iii) Social Supply Side activities are more likely chosen as the destination of SB proceeds when the issuer is a PS entity, minimizing social washing risk. Our results suggest policies maximizing impact via reducing social washing and expanding the socium. This could be achieved either by pursuing standardization of proceeds’ destination – which makes SBs more transparent to external scrutiny – or by engaging PS entities in the issuance of SBs whose proceeds go to SME financing.