Green Bonds and Social Impact Bonds are examples of sustainable investment products. These investments are issued with a particular sustainable purpose in mind. In the case of Green Bonds, the proceeds of such bonds must be for an environmentally friendly project, such as renewable energy, energy efficiency or water/waste sustainability that will have measurable environmental impact. Social Impact Bonds are used to finance the testing of social impact programs (such as prevention of recidivism), and the investors are only paid if certain successes are achieved by the social impact program. Issuance of both of these types of investments have increased in recent years, and now asset managers are formulating strategies to customize bond portfolios with sustainable investment products in order to align such portfolios to investor values. Other governmental bonds which finance projects for the “public good” are also being included in such portfolios of sustainable investment products.
Asset managers and financial advisors are finding that customers are requesting these investments, especially investors in the younger demographic. It is not surprising considering that 80% of the S&P 500 companies include sustainability efforts in their annual reports compared to 20% just five years ago based on demand from the marketplace.
Studies also show that younger investors are concerned with how their investments impact their communities, so in addition to Green Bonds and Social Impact Bonds, there may be room for more “Minibonds” that are only marketed to the community in which the financed-project is located or impacted.
As investors request more sustainable investment products, more Green Bonds, Social Impact Bonds and Minibonds will need to be issued to meet the demand.
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