21 Oct Doing Good Via Bond Investing
Socially responsbile investing has become a very real thing for many investors. The idea of investing for good, which can be widely defined, is especially important for younger generations who view solving societal problems equally important as acumulating wealth. The popularity of this type of investing has become increasingly broad based as governments globally have had particular difficulty in solving many of the most critical issues.
In an effort to improve their ability to enact change governments have begun pursuing new solutions to these problems via issuing Social Impact Bonds (SIBs). This bond type was created 10 years ago to generatge financial AND social returns along with government cost savings. SIBs differ from classic bonds: they raise money from private investors to finance interventions for social issues. The most popular targets for these bonds are improvements in social welfare, employment and health care.
Unlike typically bonds repayment and return on investment for SIBs are not a function of financial markets. Rather they are achieved upon reaching a desired social outcome. Put more bluntly if the objectives are not realized, investors might not recieve a return or repayment of principal. But if the effort succeeds, funds to repay investors come from the budget of the issuing government, donors or a combination of the two.
Since their beginning in 2010 investment in this classification has been limited. Through October of 2019 $400 million, mostly from philanthropists and charitable organizations has been invested in this type. Typically these bonds have returned approx. 7-12% for those taking on the risk.
Despite the surge in social awarness these bonds are far from being mainstream. However, it will be interesting to watch to see if the marrying of private and public capital can help achieve success in these critical social arenas.