The European social bonds market has hit €464 billion in size as investors demonstrate an increased appetite for the ‘S’ in ESG, according to Goldman Sachs Asset Management (GSAM).
A study of 700 investment professionals revealed nearly two-thirds (65%) of investors currently allocate to social bonds, or are interested in increasing their allocations.
Investors’ appetite for social bonds increased following the Covid-19 pandemic, which accelerated the shift of social bonds from a niche area of fixed income to a mainstream investment tool.
The research found that only 50 social bonds were issued pre-pandemic in 2019, whereas a year later the number had more than quadrupled to 227.
Bram Bos, global head of green, social and impact bonds at GSAM, said: “We believe the market is now large and diverse enough to make social bonds a viable complement to investors’ existing fixed income exposure.”
The survey also revealed that potential social impact and a commitment to sustainability are the biggest motivators for investing in social bonds. In particular, 57% of investors would want people who lack quality access to essential goods and services to benefit from social bond investing.
Less than 12% of investors had no preferred social theme, which indicates that investors have a clear impact agenda, according to the firm.
Even though investors’ appetite for the social bond market has increased, many investors remain cautious of the barriers to entry. A perceived shortage of products offering exposure to the social bond market was ranked as investors’ main concern about market access.
However, GSAM expects such obstacles to diminish as the social bond market in Europe continues to develop.
Bos added: “The market’s growth potential will make social bonds increasingly attractive to a wider range of investors over time. The opportunities offered by social bonds should earn them a place in any well-diversified portfolio.”
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