Why measuring social bond impact isn’t so simple – but still important

Unlike green bonds, social bonds fund outcomes that are harder to define, track and compare – which makes rigorous impact reporting both more complex and more important. Pendal sustainable finance and impact investing director MURRAY ACKMAN explains

• Social outcomes vary widely across projects
• Actual outcomes matter more than projections
• Learn more about Regnan Credit Impact Trust

Collecting impact data for social bonds is inherently more challenging than for green bonds, and this is particularly evident when reporting outcomes for Regnan Credit Impact Trust.

Green bonds tend to finance projects with relatively fungible and comparable outcomes.

Whether funding a wind farm in Australia or Europe, the underlying metrics are well established: installed capacity, electricity generated, and emissions avoided.

These outcomes are physical, annualised and repeatable.

Issuers are generally able to report them in a consistent and comparable format over time. The link between capital deployed and environmental outcome is relatively direct.

Social bonds operate very differently.

They finance a wide and diverse set of activities, ranging from social housing and healthcare to education, financial inclusion and food security.

These projects are highly context specific and often target different populations, geographies and social needs.

As a result, the indicators used to report social impact vary significantly between issuers and even between projects within the same bond program.

While international frameworks[1] encourage transparency and standardisation, they also recognise that social outcomes are harder to define, measure and aggregate in a consistent way.

In practice, issuers may report qualitative outcomes, high level beneficiary counts, or indicators that are not reported at the granularity required for portfolio level aggregation.

In some cases, data is disclosed at an issuer or program level rather than being clearly attributable to a specific bond.

Find out about

Regnan Credit Impact Trust

George Bishay, Head of Credit and Sustainable Strategies

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Engagement helps close social reporting gaps

Addressing these gaps is an ongoing part of our engagement with issuers, particularly where reporting practices are still evolving.

A further challenge is the distinction between projected and actual impact. For many social projects, outcomes take years to materialise.

A training program aimed at improving access to finance for rural women, for example, may have long term benefits that cannot be quantified in the early years of a bond’s life.

Unlike a physical asset, social change is rarely linear or immediate.

For this reason, the funds take a deliberately conservative approach to outcome reporting.

We report only outcomes that we know have occurred, based on actual data rather than projections.

This ensures that clients can clearly see what their capital has contributed to in practice, even if the full social value created extends beyond what can be captured on a calculator.

Where impact cannot yet be quantified, it remains very real and continues to inform both our investment decisions and our ongoing engagement with issuers.

Below is a list of bonds that include social projects.

Source: Pendal

[1] International Capital Market Association