April 9, 2021
While many investment sectors suffered a torrid time throughout much of 2020, outstanding impact bond issuance surged to pass the US$1 trillion mark last May as demand grew for these products.
In the fourth quarter of 2020, the European Union alone issued over €45bn of social bonds to support its member states. Impact-driven mandates are not new and had historically been a relative backwater of financial markets, focused predominantly on public and private equity markets. Yet, despite this, we believe significant and growing opportunities exist for fixed income investors in this sector.
Key drivers of impact bond market growth include shifting attitudes, with millennials and the rising Generation-Z global investor base actively seeking out companies that explicitly consider their environmental and societal impact. In our view, businesses increasingly feel the need to demonstrate a commitment to sustainability to both their clients and their investors.
Elsewhere, regulatory pressures – including widespread efforts to tackle climate change by phasing out fossil fuel use – have also helped encourage growth in the impact bond market. Increasingly, impact bonds are no longer simply seen as a niche, seed-stage asset class, but can be a potentially viable addition to portfolios in their own right – particularly given rising interest in responsible investment. As investor demand and global needs necessitate continued growth in the sector, we believe the impact bond market is now expanding into ever-more nuanced offerings.
Joshua Kendall, head of responsible investment research and stewardship, Insight Investment.