Social Bond issuance to hit R4bn in SA within year; sustained growth expected for years to come

The market for bonds issued to meet environmental and social outcomes is expected to grow exponentially in South Africa within the next year. Social Bonds are expected to feature prominently, as the country looks to “build back better” post Covid-19.

Nigel Beck, the newly appointed head of Sustainable Finance and ESG (Environmental Social and Corporate Governance) Advisory at Rand Merchant Bank, said social bonds raise capital for positive social outcomes such as job creation, healthcare, education, gender equality, affordable housing ensuring better ESG alignment.

“We have already seen the inaugural, JSE listed social bond issuance in South Africa - the proceeds of which will be directed towards inner-city refurbishment of affordable housing projects.

“Further issuance could prove a much needed, post pandemic boom for South Africa given our deep need for social services upliftment, while further paving the way for partnerships between the public and private sector.

“We’ve seen these partnerships start to work effectively with infrastructure development and we are optimistic it would also be a good model for social spending.”

RMB is a key partner with government in helping to finance South Africa’s infrastructure goals and has been a funder of infrastructure projects in excess of R100bn since the inception of PPPs (Public Private Partnerships) in SA.

“We expect 4bn in social bond issuance in South Africa within the next twelve months and think that amount could grow each year over the next three years at least, perhaps longer.

“Issuers are definitely getting better at understanding social bond instruments and how they can be tailored to their specific businesses to align their strategies around ESG. It enables them to access the debt capital markets with social bonds that also attract additional investors, which helps achieve tighter pricing through accessing a greater pool of capital.”

Beck said that he expects sustained growth in social bonds in South Africa, as investors grow more familiar with them against a backdrop of a fast-growing public appreciation of the importance of ESG challenges.

The adoption of social bonds is a global phenomenon: in 2020, with the COVID-19 crisis exacerbating societal challenges, worldwide social bonds issuances rose sevenfold to $147.7 billion.

While South Africa is leading the way in Africa, Beck added that he expected wide adoption across the continent as government and companies respond to a deep need for social advancement and delivering on ESG mandates.

ENDS