International
Platform on
Sustainable
FinanceStrengthening clarity insocial finance: scaling
up social bonds
December 2023
1

International Platform on Sustainable Finance
Strengthening clarity in social finance: scaling up social bonds

Table of contents
Chapter 1: Introduction ........................................................................................................................... 3
Chapter 2: The Current Landscape of Social Aspects in Sustainable Finance ......................................... 7
Chapter 3: Current Practices for Scaling Up Social Bond Issuances ...................................................... 10
General .............................................................................................................................................. 10
Specific social aspects........................................................................................................................ 12
Social in broader guidance ................................................................................................................ 13
Chapter 4: Challenges in scaling up social bond issuances ................................................................... 14
Chapter 5: Key findings and recommendations .................................................................................... 17
Key findings ....................................................................................................................................... 17
Recommendations ............................................................................................................................ 20
Annex 1- Jurisdictional and institutional frameworks and initiatives ................................................... 23
IPSF members and observers ........................................................................................................ 23
Other relevant frameworks in non-IPSF jurisdictions ................................................................... 30
Overview of aggregated sovereign frameworks ........................................................................... 34
Annex 2- Use cases from IPSF members and observers (and beyond) ................................................. 46

Acknowledgements and disclaimer
This report is coordinated by the European Commission together with the IPSF Argentinian
member as co-chairs of the IPSF Social Bonds Working Group, with substantial contributions
received from IPSF members and observers.
The recommendations proposed are voluntary and build on existing public and private initiatives.

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Chapter 1: Introduction
While social investment has been on the rise, it has also faced some of the greatest challenges ofenvironmental, social and governance (ESG) investing. The members and observers of theInternational Platform on Sustainable Finance (IPSF) have therefore tried to understand the existing
frameworks and practices, the challenges and opportunities in sustainable finance for social objectives
and to explore, on the one hand, elements that need to be accounted for to design effective responses
to the evolution of the market and, on the other hand, possible actions, by both public and private
actors, that may support this market and its development moving forward.

Overview of social bonds and their importance in financing social projects
Despite the efforts made by governments over the years, progress in reducing inequality in several of
the world's regions remains insufficient. Furthermore, the world is facing the deepening of one of thetoughest challenges in history. The consequences of the climate and biodiversity crisis are alreadybeing felt, especially among vulnerable countries and communities, which are also suffering for
instance from increasing poverty, food and energy insecurity, displacement, lack of access to cleanwater.
At the same time, the economic repercussions of the Covid-19 pandemic have hit the most vulnerable
populations hardest, causing substantial setbacks in many social goals, exacerbating existing
inequalities between and within countries, increasing unemployment and pushing millions of people
into poverty. The pandemic, and its economic and social impact, has widened inequality, exposed large
funding gaps in many social sectors around the world and highlighted inequality in access to basic
services, including education, health and housing in various segments of society. Geopolitical tensions,a context of falling growth, rising interest rates and global inflation, a backdrop of energy and foodinsecurity, increasing debt vulnerabilities and shrinking fiscal space, have exacerbated this situation,
leading to the diminishment of the financial resources available in many countries to achieve
development.
This context aggravates further the significant financing gap for achieving the Sustainable
Development Goals (SDGs). In 2014, the United Nations Conference on Trade and Development(UNCTAD) estimated the financing gap in developing countries at USD 2.5 to 3 trillion.1 According toestimates of the Organisation for Economic Co-Operation and Development (OECD), the Covid-19
pandemic brought this figure up to USD 3.7 to 4.2 trillion, with an additional USD 1 trillion gap in public
spending on emergency response. A closer look into financing for the SDGs reveals that between 2012
and 2017, only 6% of private capital funded social sectors.2
It is important to highlight the role of debt in this issue. Even more so if we take into account that inmany cases, middle-income countries (MICs) and low-income countries (LICs) are the countries withthe greatest financing needs to reach the SDGs objectives and a just transition, in economic and social

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https://www.jointsdgfund.org/sdg-financing
https://www.oecd.org/dev/OECD-UNDP-Scoping-Note-Closing-SDG-Financing-Gap-COVID-19-era.pdf

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terms, towards a carbon neutral or net-zero economy3. Figures show that public debt vulnerability has
increased over the last decade in LICs and MICs, becoming a critical constraint in accessing affordable
and accessible finance. According to the G20 International Financial Architecture Working Group4,
public and publicly guaranteed external debt (PPG) of low- and middle-income countries has reached
an average of 32% of GDP in 20215. At the same time, the average ratio of total public debt to GDP inlow- and middle-income countries has reached 58% in 20226. According to recent International
Monetary Fund (IMF) estimates, 39 low-income countries are now in debt distress or at high risk ofexternal debt distress, while in 2022 there were 18 middle-income countries with a credit rating of C
or lower (no investment considered highly speculative or default)7. The development of sustainablefinance is an opportunity to catalyse more public and private investments in better financial conditions
to move towards more inclusive, sustainable and resilient economies and societies. Sustainable finance
usually occupies the international agenda with a climate perspective. However, sustainable financehas an essential role in supporting wider transitions and other environmental and social factors, which
are fully interlinked. While the financial sector’s role in relation to addressing climate change andenvironmental challenges is acknowledged, its potential to address societal challenges has not yet
been fully harnessed. Connecting the dots is of paramount importance, as the interdependence of thegreen and social spheres also means that the attainment of goals within either domain presupposes
the attainment of goals within the other.

Social bonds: an investment opportunity to improve the social status quo
Social bonds offer investors a way to support projects that contribute to a social objective with apositive social impact with the prospect of a financial return (in juxtaposition with philanthropy). They
are an investment opportunity that enhances transparency and accountability of the issuer’s projects.
They may also help reduce the potential negative consequences associated with a disorderly transition
to a low-carbon economy, with serious social implications.
This type of financial instrument can be and is being used to address notably the social goals of the2030 Agenda for Sustainable Development. But closing the financing gap can only be achieved if thefinancial system identifies where capital should be deployed. This is achieved by enhancing clarity as
to where projects effectively benefit underserved populations, including women, indigenous people,
migrants, refugees, religious minorities, LTGBIQ+ people, low-income communities, and all othervulnerable communities with limited access to essential services such as basic nutrition, infrastructure,
finance, job access, etc.
Based on international experience, common categories for the eligibility of social bond projects
include, among others, supply and promotion of:3

Recognising that the goal of achieving carbon neutrality or net-zero depends on a country's level ofdevelopment.
4
G20 Note on the Global Debt Landscape.
5
For low-income countries, the external debt-to-GDP ratio has risen from 26% in 2010 to 36% in 2021, while for
middle-income countries, the external debt-to-GDP ratio has risen from 21% in 2010 to 30% in 2021.
6
From 36% in 2010 to 59% in 2021 (57% in 2022) for low-income countries and from 43% in 2010 to 64% in 2021
(59% in 2022) for middle-income countries.
7
Previously there were 13 and 8 respectively.

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•
•
•
•
•
•

Basic infrastructure such as clean drinking water, sanitation and energy.
Access to essential services such as healthcare and education.
Access to affordable housing.
Job creation and employment generation.
Sustainable food security.
Socio-economic advancement and empowerment of underserved groups, including womenand youth.

Social bonds have become increasingly popular in recent years. In 2020, the social bond market
exploded with USD 249 billion representing a more than 10-fold increase (1022%) year-on-year, thesharpest annual growth in any theme since the inception of the Green, Social & Sustainability (GSS)
debt market. As of the end of 2022, the total cumulative issuance of thematic bonds had surpassed
the USD 3.7 trillion mark. Globally, social issuances accounted for 15% of GSS debt in 2022.8 In thesovereign thematic debt market, 2020 saw the first social issuances by Chile, Ecuador and Guatemala
and sustainability bond issuances by Luxembourg, Mexico, and Thailand. Since then, sovereign
thematic bonds issuances have had a strong growing trend, with 43 sovereign issuers having issued
combined volumes of USD 323.7 billion thematic bonds at the end of 2022 according to the Climate
Bonds Initiative (CBI). However, social bond issuances slowed down in 2023.
Scaling up the social bond market presents some challenges. The size of the social bond market is
equivalent to 27.2% of the green bond market. The challenge is even bigger in the sovereign thematic
debt market, where social sovereign issuances correspond to 5.7% of green sovereign ones.9
One of the key challenges for scaling up social bond issuances, and social finance as a whole, is the lackof a clear and common understanding of social objectives, economic activities that substantiallycontribute to them, and social risks. As a consequence, there is also lack of clarity about social
investments and impacts. While environmental objectives and criteria can generally be based on
environmental science, social objectives are often even more of a qualitative and contextual nature.
Tackling specific social problems requires the identification of specific indicators and while there aresome existing international social indicators, these may not be fit to local specificities. At the sametime, there is a need for any definitions/indicators to maintain a degree of comparability andinteroperability without which cross-border investments may not reach their potential and scale.
Scaling up social bonds worldwide therefore requires exploring the development of comparable
definitions and criteria. Aside from other barriers, such as limited awareness and understanding or
limited demand (potentially explained by a lack of eligible pipeline and adverse market conditions) of
this type of instrument, it is also important that policymakers, regulators and the international
community at large reflect on whether more standardisation in the measurement and reporting ofsocial risks, impacts and dependencies could facilitate the comparison and evaluation of different
social bond issuances, support market integrity and thereby increase investor appetite.
The challenges of achieving just, sustainable, orderly and inclusive transitions to socially andenvironmentally sustainable economies can be an opportunity for policymakers to develop a
pragmatic approach to sustainability and ESG considerations and for the financial sector to be anengine for promoting efficiently and decisively social goals and more socially sustainable financing
89Climate Bonds Initiative, 2023. https://www.climatebonds.net/files/reports/cbi_sotm_2022_03e.pdf
Own calculations based on Climate Bond Database as of H1 2022.

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approaches. Social bonds may be used as a vehicle to stimulate the broader social finance market andstrengthen the related regulatory landscape, constituting a piece of a broader puzzle.
In this regard, it can be observed that the social aspect is becoming increasingly prominent in
discussions in international fora. For instance, the G20 Sustainable Finance Working Group (SFWG) thisyear discussed how to enable finance for the SDGs – Priority 2 – including a focus on impact investingfor social-related SDGs. The G20 SFWG report also included a compendium of cases studies forfinancing SDGs for social impact investment. The increasing demand for social bonds (to finance, forinstance, social housing, healthcare, and jobs for target groups) is another indicator that investors see
social investments as an opportunity. This demand also shows that private capital can be directed tosocially valuable activities.
This report focuses on social bonds as a subset of social finance to examine different approaches andbest practices across the IPSF membership and beyond. The following Chapter briefly addresses thedifferent ways in which social considerations have been incorporated in sustainable financeframeworks beyond social bonds. Chapter 3 maps initiatives that have been developed at internationaland regional level on the subject of social bonds – including initiatives on narrower themes. Chapter 4
presents some of the key challenges in scaling up social bond issuances and facilitating financial flows
for social objectives. Chapter 5, bringing together the experience of IPSF members and observers,
concludes with key takeaways, considerations and recommendations for addressing these challenges
and pursuing increased interoperability between social bonds frameworks. While social bonds are thefocus of the present report, the identified challenges, opportunities and conclusions may apply more
broadly to the field of social finance, including other instruments and products. The IPSF hopes thatthe insights coming out of this report will inform future work on these issues.

6Chapter 2: The Current Landscape of Social Aspects in Sustainable
Finance
From a regulatory perspective, there are several ways to address social aspects in sustainable financeframeworks. Different approaches and instruments may be combined but do not all have to be in place
simultaneously.
➢ Social taxonomies. Most recently, in March 2023, Mexico’s Ministry of Finance launched thecountry’s Sustainable Taxonomy with the initial aim of addressing three major sustainability
challenges: climate change, gender equality and access to basic services in municipalities. Its
purpose is to facilitate financial flows and mobilise capital for sustainable activities, generatereliable information, provide transparency, create the foundation for sustainable financepolicies in Mexico, and address social gaps and vulnerabilities. The Mexican Taxonomy took an
innovative approach by selecting one social category that is highly material to the country. On
the social dimension, gender equality, healthcare, education, financial inclusion, as well as
access to services relative to sustainable cities are included in the Taxonomy.10 Mongolia is
another country that integrated social objectives in its taxonomy by revising its existing green
taxonomy (2018) into an SDG Taxonomy (2023), adding social impact sectors and activities
such as health, education, communications, and affordable infrastructure. Mongolia’s
taxonomy also proposes key social impact indicators to assist investors in the impact
measurement, reporting and verification of sustainable instruments and transactions. Related
discussions have also taken place or are ongoing in other jurisdictions.11➢ Social in taxonomies. The EU Taxonomy Regulation establishes criteria for determining
whether an economic activity qualifies as sustainable. Minimum social safeguards are a corepillar of the EU Taxonomy alongside ‘substantial contribution’, ‘do no significant harm’ and the‘technical screening criteria’. Minimum safeguards are defined against the alignment with theOECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business andHuman Rights (UNGPs), including the principles and rights set out in the eight fundamental
conventions identified in the Declaration of the International Labour Organisation (ILO) on
Fundamental Principles and Rights at Work and the International Bill of Human Rights. In its
2022 Report on Minimum Safeguards, the EU Platform on Sustainable Finance advised on theapplication of minimum safeguards in relation to the Taxonomy Regulation by a) embedding
Minimum Safeguards in existing EU regulation, b) identifying substantive topics relating to thestandards and norms referenced in the definition of Minimum Safeguards and c) presenting
advice on compliance with Minimum Safeguards.
➢ Sustainability reporting covering the S in ESG. In India, the top 1000 listed entities by market
capitalisation must report on both environment and social-related key performance indicators(KPIs) as part of the Business Responsibility and Sustainability Report. Social KPIs covercommunities, consumers, and gender diversity, among others. The European Sustainability
Reporting Standards, covering own workforce, workers in the value chain, affected
communities, and consumers and end-users are another example. In the EU’s framework,10

https://www.gob.mx/cms/uploads/attachment/file/809773/Taxonom_a_Sostenible_de_M_xico_.pdf (p. 26)
For example, the EU Platform on Sustainable finance put forward recommendations to the European
Commission on a possible social taxonomy. The EU Platform on Sustainable Finance is an advisory body and does
not commit the Commission or preclude any policy outcomes.
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double materiality is an important angle, as it looks at activities’ impact on social aspects. In
this way, it promotes a rethinking and enables a cultural change. There may be a question onwhether financial materiality is sufficient, especially in the area of social sustainability.
➢ Corporate governance requirements. For instance, the G20/OECD Principles of Corporate
Governance provide guidance to help policymakers evaluate and improve the legal, regulatory
and institutional framework for corporate governance, with a view to supporting, among
others, sustainable growth and financial stability. The Principles have a global reach and reflect
the experiences and ambitions of a wide variety of jurisdictions with varying legal systems andat different stages of development. The Principles offer guidance on companies’ sustainability
and resilience, and will help companies manage environmental and social risks. In the EU, theCorporate Sustainability Due Diligence proposal foresees implementing comprehensive
mitigation processes for adverse human rights and environmental impacts in companies’ value
chains, integrating sustainability into corporate governance and management systems, andframing business decisions in terms of human rights, climate and environmental impact, as
well as in terms of the company’s resilience in the longer term.
➢ Labels and guidance for social instruments. Guidelines and labels allow both issuers andfinancial stakeholders to catalogue and identify financial products that ensure sustainability as
they address challenges in terms of social and climate criteria. Labels define specific criteria,
and alignment with these criteria is usually assessed by qualified and accredited third parties,
who can verify consistency with the certification criteria. The traceability and transparency ofthese processes provide a degree of confidence that the investment will have a social impact,giving visibility to investors of the use that sovereign governments or companies make of theresources they obtain in the market with the issuance of a bond. The International CapitalMarket Association’s (ICMA) Social Bonds Principles are the main guideline on the subject andthe basis on which many jurisdictions have developed guidelines and labels. For instance, theArgentine National Securities Commission (CNV) has worked on a Guide for the issuance ofThematic Bonds, including the possibility of issuing Gender Bonds, where the funds will beapplied exclusively to finance activities or projects related to diversity, equity and inclusion ingender issues, and whose target population are women and the LGBTI+ community12. Workon a joint European Commission-OECD report on labels has also recently started. The reportwill map public and private certifications, statuses and qualifications available and applicable
to social economy entities in the EU and will analyse their trends and main criteria.
➢ Integrating social factors in ESG risk assessments and related financial legislation. Social risks
entail financial implications for companies. For example, labour strikes and employee attrition
can affect productivity and labour issues can result in reputational risks. The financial value ofsocial risks has been increasingly integrated in investors’ calculations.13
For instance, banks and investors can integrate social indicators into their operations and use accessto finance as a tool to raise corporate standards on social issues (such as low productivity and growth
relating to long term unemployment, inequality, unequal access to education and human rights

12

The first issuance of a gender bond in the Argentine capital market took place in February 2023 by thecompany PRO MUJER S.A. In this issuance, the objective of PRO MUJER SA. was to allocate all the funds raised
to provide loans to 1,700 women, mostly low-income and between the ages of 18 and 75, as well as to ownersof micro and small businesses.
13
https://www.oecd.org/finance/ESG-investing-practices-progress-challenges.pdf

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violations, bringing investment to remote regions and thus preventing them from continuing to fallbehind). In order to direct capital flows, central banks, where in their mandates, may also consider
mandating financial institutions to lend a minimum percentage of their portfolio to certain sectors
which may not be lucrative on their own. For instance, the Reserve Bank of India has mandated the
Scheduled Commercial Banks to lend at least 40% of their net bank credit to sectors covered underpriority sector lending, including education, housing, and social infrastructure.
It is essential that a balance in the relationship between social and environmental objectives ispreserved. Regardless of whether it is social or environmental finance, a holistic assessment isessential and negative social and/or environmental impacts should be considered. This can be achieved
notably via concepts such as do no significant harm or minimum safeguards. For instance, just as socialand governance-related minimum safeguards (UNGPs and OECD guidelines for Multinational
Enterprises) are part of environmental taxonomies and tools, minimum environmental safeguards
should be part of social taxonomies and social tools. Environmental and social ‘do no significant harm’criteria can also facilitate a closer integration of social and environmental goals and requirements.
While minimum safeguards crucially ensure a certain degree of mainstreaming across areas coveredby sustainable finance frameworks and address primarily social risks of investments, a more proactive
approach has been taken in some cases to accelerate positive social impact and bring in moreinvestments. Such approaches include:➢ The 2X Challenge, launched by the G7 in 2018, to increase gender-smart private sector
investment in developing country markets.14➢ The Just Transition Declaration adopted by the European Union, EU Member States, Canada,
New Zealand, Norway, the UK, and the US on the occasion of COP26. The Declaration sets out
just transition principles, which apply to the signatories’ funding for low and middle income
countries (LMICs) and their own domestic just transition plans.15➢ The UN’s Road Safety Strategy.16
The fact that social aspects can be integrated into sustainable finance frameworks in a multitude ofways provides jurisdictions and organisations with the necessary flexibility to adopt an approach thatbest responds to their specific needs and circumstances. At the root of all approaches lies the questionof how social aspects, activities, risks, and impacts are understood, identified and measured. The G20
Green Finance Synthesis Report of September 2016 highlighted that ‘the lack of clarity as to what
constitutes green finance activities and products (such as green loans and green bonds) can be an
obstacle for investors, companies and banks seeking to identify opportunities for green investing’. The
G20 recognised that a ‘one size fits all’ approach is not required as a solution and that internationallycomparable indicators are useful in facilitating cross-border and cross-market green investment. This
assessment also applies in the case of social finance, which is considered the twin sibling ofenvironmental finance by the United Nations Environment Programme (UNEP) Inquiry of 201617.

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https://www.2xchallenge.org/
https://ukcop26.org/supporting-the-conditions-for-a-just-transition-internationally/16
https://www.un.org/en/safety-and-security/road-safety
17
http://unepinquiry.org/wp-content/uploads/2016/09/1_Definitions_and_Concepts.pdf
159Chapter 3: Current Practices for Scaling Up Social Bond IssuancesThis section focuses on guidance and frameworks that have been produced at a global and crossjurisdictional level to structure and guide the issuance of social bonds. It initially maps those addressing
social aspects as a whole. It then zooms in to frameworks focusing on particular aspects, especiallygender. It finally presents how social considerations have been incorporated in broader bond guidance.
Jurisdictional approaches, from the IPSF and beyond, to the design of locally-tailored frameworks andthe implementation of the regional and global frameworks detailed here can be found in Annex 1.

GeneralICMA Social Bonds Principles
ICMA’s Social Bonds Principles (SBP) have emerged as one of the key reference points for social bondissuances on the global stage and form the basis of several other pieces of guidance and initiatives.
ICMA defines social bonds as ‘any type of bond instrument where the proceeds, or an equivalentamount, will be exclusively applied to finance or re-finance in part or in full new and/or existing eligible
Social Projects’. To qualify as a social bond, the following core components have to be complied with:
1. Use of proceeds: the proceeds of the bond must be used for eligible social projects that aim toespecially benefit vulnerable groups of the population. Social project categories include:
affordable basic infrastructure, access to essential services, affordable housing, employment,
food security and sustainable food systems, socioeconomic advancement and empowerment.
2. Process for Project Evaluation and Selection: issuers should at a minimum inform investors of
the social objectives of the social projects, the eligibility evaluation process, and theidentification process for social and environmental risks associated with the projects.
3. Management of Proceeds: issuers should track the net proceeds of their social bonds, forexample by means of a sub-account or sub-portfolio, and follow principles of transparency visà-vis investors.
4. Reporting: issuers should update information on the use of proceeds on an annual basis orpromptly in case of material developments.
ICMA’s principles allow variety with regard to the focus of eligible projects and flexibility with regard
to the particular context of a given project or issuance.
ASEAN Social Bond Standards (2018)
For issuances of ASEAN Social Bonds, issuers must, in addition to the SBP, follow the 2018 ASEAN Social
Bond Standards. In terms of eligibility, they require a geographical or economic link of the issuer orissuance to the ASEAN region and that the financed projects do not pose a negative social impact
related to alcohol, gambling, tobacco, and weaponry. They also allow issuers the freedom of defining
further ineligibility criteria.
Furthermore, disclosure requirements on the part of the issuer are higher; information on the use ofproceeds, project evaluation and selection process, and management of proceeds must be included in
the issuance documentation and made publicly available continuously. Periodic reporting is
encouraged on top of the SBP’s annual reporting requirement. Finally, external reviews, while10remaining voluntary as in the SBP, have to be conducted by experts in the field. Reviewers’ credentials
and the scope of the review must be made publicly available.
As one of the early players in the area of social bonds, ASEAN utilised ICMA’s SBP to create a stricter
regime that caters to local circumstances and needs. The additional requirements on transparency andineligible projects showcase how the SBP can be adapted and reinforced to fit different contexts.
Central American Bank for Economic Integration (CABEI) - Social Bond Framework (2019)
The CABEI Social Bond Framework is aligned with the ICMA Social Bond Principles and aims to financeprojects in strategic sectors such as: access to essential services, employment generation, socioeconomic empowerment, affordable basic infrastructure, food security and sustainable food systems.
The selection process is carried out by a Multidisciplinary Social Bond Working Group. The process isguided by a System for the Identification, Evaluation and Mitigation of Environmental and Social Risks
and has an exclusion criterion. The exclusion criterion stipulates that no projects may be financed that
violate CABEI environmental and social policy, environmental and social regulations in force in the hostcountry and international environmental and social agreements and conventions. In terms ofreporting, reports on the allocation of funds (allocation reports) and the impact of Eligible Social
Projects (impact reports) are provided to investors on an annual basis during the life of the Social
Bonds.
Inter-American Development Bank Invest Sustainable Debt Framework18
IDB Invest has designed this Sustainable Debt Framework (SDF) as an overarching tool ruling theissuance of green, social, and sustainability debt instruments. It is aligned with ICMA’s Green Bond
Principles (GBP) 2018, SBP 2020, and Sustainability Bond Guidelines (SBG) 2018. This is the first ICMAaligned Sustainability Debt Framework from a high-grade multilateral development bank.
The SDF is used to finance and/or refinance, in whole or in part, new or existing projects, with short or
long-term maturities, that are eligible for the following categories:
For the social category, the sectors and projects chosen are related to Health and well-being (SDG 1);
Quality education (SDG 4); Gender equality (SDG 5); Clean water and sanitation (SDG 6); Affordable
and clean energy (SDG 7); Decent work and economic growth (SDG 8); Industry, innovation andinfrastructure (SDG 9); Reduction of inequalities (SDG 10); Sustainable cities and communities (SDG
11); Responsible production and consumption (SDG 12); Climate action (SDG 13) and Partnerships toachieve goals (SDG 17). These include:
•
•
•
•
•

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Affordable basic infrastructure (social Infrastructure - including health and education, among
others – and Transport),
Access to essential services (water and sanitation and energy),
Food security and sustainable food systems,
Employment generation and programs to alleviate unemployment from socio-economic crises(agribusiness and manufacturing),
Socioeconomic advancement and empowerment (telecommunication and financial
institutions and fintech),

Available at: https://www.idbinvest.org/en/download/12265.

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•Sustainable water and wastewater.

For the evaluation and selection of projects, IDB Invest applies its Impact Management Framework
throughout the project cycle, which is based on three pillars: Strategic Selectivity (focused on key
priority areas: climate change, gender equality and diversity and inclusion, micro, small and medium
enterprises); Development Impact; and Systemic Approach.
Funds are managed by IDB Invest and reported on an annual basis until maturity of the bond. Thisconsists in reporting revenues collected through the sustainable debt instrument and an impact reportspecifying the environmental and social impact results achieved. Integrated reporting for investors
includes both environmental and social impact indicators in a single report.

Specific social aspects
Some frameworks and initiatives address specific social objectives. The gender dimension has
especially gained prominence, leading to frameworks that support the issuance of gender bonds:
2X Challenge Criteria19
On the particular subset of gender bonds, 2X has defined five non-cumulative criteria (four direct and
one indirect) for 2X eligibility. The eligibility of projects is judged based on whether one of the following
criteria is fulfilled:
1) Entrepreneurship- if a business has been founded by a woman or the share of women
ownership is equal to or exceeds 51%.
2) Leadership- if the share of women in senior management or on the board or on the investmentcommittee is 30%.
3) Employment- if the share of women in the workforce is 30-50% (depending on the sector) andif the employer has in place an initiative to specifically advance women in the workplace.
4) Consumption- if the product or service specifically or disproportionately benefits women.
5) Investments through Financial Intermediaries: if 30% of the development finance institution
loan proceeds or portfolio companies meet one of the four direct criteria.
IFC and UN Women Guidance on Gender Bonds
This 2021 document explores how sustainable and sustainability-linked bonds can cater to genderequality. As far as gender bonds are concerned, it invites investors to consider the gender dimensionof the issuer’s leadership, workforce, supply chain, products or services, and community engagement.
For public sector issuers, of relevance are the national action plan for gender equality, relevantinternational frameworks, laws and policies with potential gender equality impact, and genderresponsive budgeting. It also seeks to guide issuers by means of sample projects, KPIs, andsustainability performance targets.

19

https://static1.squarespace.com/static/5b180402c3c16a6fe0001e45/t/60bfe754201d3d2a8e51745c/16231893
33660/2X+Challenge+Criteria+%28Final+June+2021%29.pdf,
https://assets.cdcgroup.com/wpcontent/uploads/2020/03/16111901/How-to-measure-the-gender-impact-of-investments.pdf

12Social in broader guidance
Other frameworks and initiatives have approached the social element as part of broader guidance they
have issued. One example is:
ILO Just Transition Finance Tool
This guidance focuses on mainstreaming social considerations in climate transition activities in banking
and investing. It builds a four-tier framework consisting in the following steps:
1) Foundations: assessing and including just transition considerations in the organisation’s
corporate and net zero strategies.
2) Governance: ensuring commitment from senior leadership, assigning responsibilities, building
capacity to support a just transition.
3) Implementation: embedding just transition considerations in the product offering; origination;
lending/investment agreements; and monitoring, risk and impact management and reporting.
4) Engagement: embedding social aspects in client relationship management processes andengaging with relevant actors to promote system-wide innovation.
Other tangentially related resources include:•••

The International Finance Corporation’s (IFC) Performance Standards, which also form thebasis for the IFC’s ESG performance indicators for capital markets. These define theresponsibilities of IFC clients as regards the management of environmental and social risks.
Among others, they set standards for labour and working conditions; community health,safety, and security; indigenous peoples; and cultural heritage.
The Loan Syndications and Trading Association’s Social Loans Principles. These are structured
around the same four components as the ICMA principles and follow the same definition andexamples of social projects.
On social loans and in line with ICMA, the Loan Market Association has published Guidance forGreen, Social, and Sustainability-Linked Loans External Reviews, addressing the form, process,and content of external reviews.

13Chapter 4: Challenges in scaling up social bond issuances
Some of the challenges entailed in social bond issuances are not unique to social finance but rather
are common to those faced by green and sustainability bonds. There is a higher transaction cost linked
to GSS bond issuances compared to vanilla bonds. These costs arise from the complexity of the process- including the bond framework, impact assessments, ongoing reporting – but also include costs arisingfrom local currency issuances. Indeed, issuances in local currency have higher transaction costs, which
decreases the returns of international investors. A further challenge is the low liquidity due to the lackof a secondary market for the thematic bond asset class, and especially sovereign social bonds. These
come on top of broader challenges that may affect the development of financial markets, especially inemerging economies. Such challenges include macroeconomic and market conditions, such as a highrisk of default and market volatility that may discourage potential investors, as well as limited
institutional capacity which may delay the development of appropriate frameworks and a supportive
market infrastructure. An unfavourable geopolitical context and associated risks can further
exacerbate such market-related challenges.
The social bond market also faces some specific and heightened challenges compared to other (green
and sustainable) bonds, which are analysed in further detail in this chapter.
Investor perception, prioritisation and diversification needs. The investor base for social bonds is
growing but remains relatively smaller compared to the broader sustainable bond market. Several
causes lie at the root: (i) the average social bond deal size tends to be smaller than green bond deals
to date, which impacts the return on investment and the pool of interested investors; (ii) there is aneed for generating a diverse pipeline of investment-ready projects to support investors’ needs indiversification across social themes and geographies; (iii) investors with eligible social expenditures
may prefer to incorporate those alongside green expenditures into a sustainability bond. Furthermore,
given the low level of awareness in the area of social finance, some investors may be disincentivisedby the perception that social upliftment is solely within the mandate of governmental action.
Risk perception of investors may be higher due to uncertainties in measuring social outcomes andconcerns about impact washing, which may result in lower demand and higher borrowing costs forsocial bond issuers compared to their green bond counterparts. The credit risk of social and green
bonds is the same as for vanilla bonds.
Complexity in the credible identification and measurement of social impacts. More comparability
between definitions of social finance is key to fostering investments for social objectives. A key
challenge when it comes to social investing is the comparative elusiveness of social risks and social
impacts and the lack of clarity of definitions of social finance (and by consequence also lack ofcomparability). There is a relatively poor common understanding of the definitions and concept ofsocial investment. The qualitative nature of many social indicators may also hamper widespread
adoption and creates a risk of ‘social washing’ or an asymmetrical investor focus on areas and targets
with more straightforward, quantitative indicators. While environmental impact can be pinned downon the basis of environmental science, there is no universally accepted methodology to measure andvalorise social impact.
This is, to some extent, justified by the need to reflect varied circumstances and types of social impact.
It however also means that measurement is more complex and costly. This, together with nascent14

investment-enabling environments in many jurisdictions including limited and fragmented
measurement and reporting frameworks for social finance, as well as insufficient investor awarenessabout methodological tools to integrate social aspects into investment policies, may hindertransparency, comparability, and ultimately impact the potential of social investing on a global scale.
The analysis of different frameworks in Chapter 3 and Annex 1 shows that there is some degree of
convergence in eligible categories of potential impact metrics, but that the actual impact metrics
remain very heterogeneous. The same also applies to the specific measurement methodologies ofthese impact metrics. For instance, measurable impacts might be in the form of education (better
educational outcomes) or health (reductions in cancer diagnosis); metrics should be clearly monitored,measured, and reported to understand the additionality of any investment. This requires additional
skills and dedicated capacity, but it is also often difficult to execute, particularly if done ex-post andnot embedded in the structure/conditions of the issuance. As it may be sometimes challenging tomeasure impacts accurately, an associated (unwanted) risk might be the focus on investments forwhich there are ‘easy’ measurement methodologies.
The OECD has mapped different measurement methodologies and identified the variety of definitionsfor ‘social’ and ‘impact’, recognising that methodologies can differ depending on whether they aim toprove or to improve an organisation’s impact. Further considerations affecting the methodology
include the scope and whether the measurement is ex ante, ex post, or concurrent to the project’s
implementation. After analysing different approaches, the OECD concludes with seven areas whereconvergence appears to emerge:
1) The acknowledgement that a one-size-fits-all approach does not reflect the variety of social
investing and the evolution of standards.
2) The use of causal models, including theories of change, value chains, and logic models, todetermine which impacts to measure.
3) Stakeholder engagement as a key pillar of methodologies.
4) Social impact increasingly being linked to well-being.
5) The inclusion of qualitative indicators alongside quantitative ones.
6) Incorporation of digital tools for the collection and sharing of data.
7) The requirement for independent verification to prevent impact washing.
Lack of comparable and interoperable frameworks for social reporting and financial risk reportingand management. There is currently no global framework to guide companies and investors inmeasuring, managing and mitigating the risks to enterprise value and financial stability generated bysocial issues. Business, policy and investment behaviour is grounded in international human rights law,as interpreted by the UNGPs, the International Covenant on Economic, Social and Cultural Rights andjurisprudence. Yet investor mobilisation has been limited, among others, by (i) a lack of comprehensive
analysis of how social and inequality-related risks can manifest as material financial risks – both toindividual enterprises and the health of the entire financial system; (ii) a lack of understanding about
how private-sector activities contribute to social inequalities, and by how much; and (iii) insufficientinvestor awareness about methodological tools to integrate social aspects into investment policies.
Discrepancies between existing reporting frameworks for social bonds may pose an obstacle forinvestors and further hamper comparability and therefore an efficient allocation of funds. Lack of15

investment track record, data on returns and risks associated with a social investment may discourage
investment.
Inadequate verification processes and assurance practices. Robust processes for impact verification
and auditing help prevent impact washing and enhance investor confidence. Currently, the market forverification and assurance of social bonds is fairly underdeveloped and such processes can come at ahigh cost. This can put the credibility and trustworthiness of social bonds into question.
Imbalanced allocation of capital. Concentrations of debt in some markets versus others, or on specificSDGs, can lead to inequality and also create asset bubbles or credit crises. Moreover, it may bechallenging to ensure that social bonds proceeds reach those who need them the most and contributeto reducing social inequalities in an inclusive way. From a public sector perspective, it must be kept inmind that, despite the social dimension, investors’ decisions are still informed by the prospect of a
return. Some investors may perceive social bonds as riskier or less financially attractive compared toother bond types. This may pose a challenge for some services, as it is more likely that investors fundprojects with a higher chance of success, which may exclude the services on which the most vulnerable
populations depend.
Scalability. Given the central regulatory and normative role of state actors in social policies, theconception and implementation of cross-border projects aiming at social impact can be significantly
more complicated. While this may not be a problem for goals such as access to drinking water, heavily
nationalised fields like education or unemployment may not be easily scalable across borders due todifferent approaches to these policy areas by different governments. Scalability may also be negatively
affected by the circumstance-driven nature that often characterises social projects, in the sense thatprojects can come in response to a particular short- or medium-term need and so are perceived as
only ‘one off’.
Sustainability of impact. The public sector should be prepared to ensure service continuity when suchprojects come to an end, whether as planned or prematurely, and, if necessary, absorb the shock. Thiscan incur a high financial cost, but equally requires careful planning as far as resources, capabilities,
and expertise are concerned.

16

Chapter 5: Key findings and recommendations
The development of social bonds implies exploring various elements, from developing the social
ecosystem to understanding the sources and levels of social investment, attractiveness to investors,
the criteria of project or activity selection, and use of proceeds, to name a few.

Key findings
The size of the social bond market has expanded rapidly, no doubt accelerated by the Covid-19
pandemic. At the same time, the market has also showed a downward trend in 2022. Between 2021
and 2022, the volume of social bond issuances fell by 41%. It remains too early to attempt to assess orinterpret this fluctuation. However, a multi-year view on the development of the social bond market
will be important moving forward to track trends and understand their root causes and implications.
As identified in the previous chapter, there is a financing asymmetry across SDGs, a phenomenon that
may be explained by a multitude of reasons including the profile and interests of the issuer, the(perceived) demand in the market or the complexity of measuring impact on a particular goal. Analysis
shows that 60.5% of sovereign social issuances are most relevant to SDG 8 (Decent Work and Economic
Growth), SDG 16 (Sustainable Development) and SDG 1 (End Poverty). As will be explained below,
OECD research points to various motivations for financing social projects, which may also influence thechoice of projects and targeted SDGs.
In general, there is clear demand for private investment for social objectives as a confluence ofworsening macro-economic conditions, reduced public budgets and persisting socio-economic issues
in a range of areas, including health, education, employment, and access to certain services. Suchfinancing demand may come from a range of actors that contribute to the resolution of social issues,
such as corporations, social enterprises, social-purpose organisations, non-profit organisations,cooperatives, inclusive businesses, and traditional companies with intentional social impact.
Importantly, public entities at central and local level are also frequently issuers of social bonds.
The issuer landscape in social bonds transcends the traditional dichotomy between sovereign andcorporate. Analysis by CBI on the 2022 market shows that social and sustainability debt was primarily
issued by the public sector; however, if one looks at the precise breakdown, it becomes evident thatsovereign issuances make up the smallest portion of public sector issuance (Figure 1). Local
government and, crucially, government-backed entities play a leading role. In fact, government-backed
entities surpassed manifold any other type of issuer in terms of the volume of 2022 issuances (Figure2). The prevalence of government-backed entities may be explained by the particular nature of social
policies and the competences and mandates such entities have in their respective jurisdictions.

17Figure 1 (CBI Global State of the Market 2022)

Figure 2 (CBI Global State of the Market 2022)

On the investor side, motivation to finance social projects can vary, which may ultimately influence
the choice of sector or SDG. Capital providers (including governments, multilateral development banks,development finance institutions (DFIs), and private investors such as equity funds, foundations, highnet-worth individuals, banks, pension funds, sovereign wealth funds, and other financial market
players) may increasingly see social investment as a way to diversify their portfolios, improve risk
management, pursue financial and societal goals but also to respond to regulatory and disclosure
obligations.

18

In setting up social finance frameworks and scaling up social bonds issuances, it is also important tounderstand the perspective of investors, and why investors may or may not be interested in social
bonds, as opposed to green bonds. This might lead to observations on the attractiveness of the social
market or things that may need to be addressed. Given the relatively nascent nature of social finance,
it is not yet certain that there is a qualitative difference between the social and green markets. In fact,
there are indications that the growth of the social bonds market is faster than the growth of the green
bonds market at a comparatively early phase, perhaps in part due to the Covid-19 pandemic.
Figure 3 below summarises the key drivers found to motivate ESG investment. According to the OECD,institutional investors – usually mediating between the bond issuer and their clients – decide based on
calculations of risk and financial return. Meanwhile, end investors are rather moved by the societal
values furthered by their investment. 20 While increased end investor appetite can also serve toincrease demand and subsequently financial return, low-risk high-profit projects and objectives arelikely prioritised, particularly in the case of institutional investment. Growing awareness and theincreasing amount of pressure applied by the public, in their capacity as citizens or investors/clients,
can also drive a broader push for governments and corporations to behave and invest in a socially
responsible manner and perhaps lead to more investment in under-financed social sectors.

Figure 3 (OECD ESG Investing: Practices, Progress and Challenges)

Directing capital to ventures that are expected to yield social and environmental benefits as well as
profits provides investors with a way to ‘do well by doing good’. In Japan, the report of the JFSA’s
Working Group on Impact Investment aims to foster a common understanding among stakeholders on
the role, concepts, and key elements of impact investing, based on the understanding that social orenvironmental impact and business potentials can complement and strengthen one another, creating
a positive feedback loop.
The Impact Multiple of Money (IMM) is a six-step process for calculating it: (1) Assess the relevanceand scale of a potential product, service, or project. (2) Identify target social or environmental
outcomes. (3) Estimate the economic value of those outcomes to society. (4) Adjust for risks. (5)20https://www.oecd.org/finance/ESG-investing-practices-progress-challenges.pdf

19

Estimate terminal value. (6) Calculate the social return on every dollar spent. The IMM ‘offers arigorous methodology to advance the art of allocating capital to achieve social benefit’.21
Public authorities, regulators, standard setters are crucial in shaping the regulatory framework andpromoting responsible investment practices. A favourable context for sustainable finance canpromote and enable transparency, accountability, and the long-term sustainability of investments,
incentivise responsible investment practices, and discourage investments contributing to negative
impacts. Frameworks and standards can provide guidance for measuring and reporting on social andenvironmental impact, ensuring transparency and accountability.
Rating agencies and index providers offer sustainability assessments and benchmarks for social
investing22, evaluate ESG disclosures, etc. If credible and sound, these ratings and indices can guide
ESG portfolio management and support the development of sustainable investment products.
Governments could work with standardisation bodies to ensure that the methodologies and norms areinteroperable and transparent, allowing market development and scalable mobilisation of resources.
The balance between social and climate or environmental objectives is important to consider.
Regardless of whether it is social or environmental finance, a holistic approach is needed and negativesocial and/or environmental impacts should be considered. Investor confidence could be lost without
this balanced approach: a social or SDG objective cannot be an excuse for the financing ofenvironmental degradation or finance that is ultimately incompatible with Paris Agreement goals; theadoption and adaptation of environmental and climate change safeguards would also need to takesocial considerations into account, including structural constraints, improving the quality of
employment, or reducing social gaps.

Recommendations
Broader public policies to support social goals. As identified in the previous section, investment islikely to be directed to projects with a higher likelihood of success and financial return. As such, social
bonds may be seen as a complementary instrument within the wider context of public policy andservice provision. For instance, public authorities could establish ‘just transition funds’ supporting
activities to address e.g. climate action and related employment risks for workers and vulnerable
communities, reskilling programmes etc. Mandatory corporate social responsibility on SDG-linked
activities for companies above a certain threshold of revenue or profits is another example.
Developing comparable sustainable financing frameworks that support the issuance of bonds orloans that finance programmes and projects with positive social impacts in each jurisdiction. Suchframeworks allow for the identification of projects or programmes that channel resources towards
investments and expenditures that contribute to the achievement of the country's environmental andsocial objectives, for instance environmental protection, resilience to climate change, reduction ofpoverty and other inequalities, ensuring gender equality and diversity, as well as increasing thecountry's competitiveness on a sustainable development path.
Creating an investment-enabling environment for the social bond market. The establishment of
supportive regulations, tax incentives and clear guidelines for social bond issuances can help drive
21

Addy et al (2019) Calculating the Value of Impact Investing, Harvard Business Review.
https://hbr.org/2019/01/calculating-the-value-of-impact-investing22
https://www.oecd.org/finance/ESG-Investing-Practices-Progress-Challenges.pdf

20

market growth. Public-private partnerships may facilitate this, as governments can provide incentives
and support mechanisms for private sector participation in social bond issuances. The public andprivate sector can in this way work together to identify and prioritise socially impactful projects.
Governments have a crucial role to play in building market space through policies that recognise theimportance of social finance. For example, through plans that advocate further exploration of thepotential of Social Impact Bonds (SIBs), they can synthesise interest in developing innovative financing
schemes starting from the central level, followed by local authorities. They can also improve scalability
and replicability through robust contractual schemes that create certainty, efficiently allocate risk andadapt to the needs of issuers and investors. It is also crucial to work on a clear and transparent
reporting process.
The International Public Sector Accounting Standards Board (IPSASB) has decided to commence thescoping of three potential public sector-specific sustainability reporting projects to develop
sustainability reporting guidance tailored to the public sector which would encourage transparency.
This would allow governments to be held accountable for the long-term impacts of their interventions
and enable better-informed decision-making.
Developing comparable and interoperable frameworks on social risk reporting. Increased
collaboration between standard-setting organisations, regulatory bodies, and industry stakeholders
could help overcome the discrepancies in risk reporting and management frameworks and pave theway for consistent reporting requirements and indicators for social impact, and in this way facilitatecross-border investment. Attention should be paid to how forward-looking social and contextual risk
analyses could be further developed, particularly in relation to the trend of growing inequalities. Thereis also a need for investors to factor in social risks and take up social issues with investee companies
as part of their stewardship responsibilities. More comparable and interoperable frameworks forassessment and reporting by companies on social risks and impacts will bring a greater focus and push
on social finance. Although there have been significant steps forward (such as the Impact Reportingand Investment Standards and the Global Reporting Initiative), further efforts are needed, for example
to allow investors to assess and compare the impact of different types of social investments or to covera broader range of possible social areas. These frameworks would also help fill a gap in data that has
been highlighted above and make investment decisions easier, more transparent and increasingly
scalable.
Creating an ecosystem (with advisory and intermediary markets). The existence of advisory andintermediary markets can assist both issuers and investors in identifying investment opportunities andbuild up a financial structure for each investment in the absence of ‘off the shelf’ ready-madeinvestments.
Developing the verification and assurance market. Independent verification and assurance
mechanisms are crucial to ensure credibility and trustworthiness of social bonds. However, as
identified in the previous chapter, the cost of such processes may reduce the appeal of social bondissuances for investors. Making verification and assurance mechanisms more accessible will
simultaneously increase the attractiveness of social bond issuances and enhance credibility and trustin the market.

21

Enhancing the availability of data. To match capital to real needs and monitor the progress of social
investments, investment in relevant social data at the local and global level is crucial. As identified in
the previous chapter, certain objectives or SDGs may disproportionately attract financing because ofavailability on data for those objectives. This may be because it is easier to monitor or measure certain
objectives as compared to others, because there are longer track records, and other reasons. The
collection of comparable data on the funding gaps and identified needs in different social fields canhelp better tailor pipeline projects, direct investors, and in this way maximise the impact of social
investment. Reliable and coherent data on social indicators can inform the decision-making ofinvestors, enhance the assessment of impact, thus in turn better focusing future investments andoverall improving the market’s credibility.
Leveraging blended finance. Given the quantum of funds needed for supporting the achievement ofsocial goals, there is a need for catalysing private capital in projects that contribute to sustainable
development, while providing financial returns to investors. Policy makers can consider creating
avenues for mobilising blended finance, including setting up capacity-building funds for creatingawareness amongst stakeholders, of avenues for fund raising and investing.
Strengthening Regulatory Oversight. Regulatory bodies should play an active role in promoting andmonitoring the issuance of social bonds. They can develop guidelines, conduct regular audits, andenforce compliance to ensure that social bond issuances adhere to established standards andprinciples.
Enhancing market participants’ education and awareness. Capacity-building programmes have thepotential to enhance the capabilities of market participants, including issuers, investors, andregulators, in understanding and implementing social finance principles. This can involve training
programmes, knowledge-sharing platforms and mentorship initiatives. As regards investors inparticular, education and awareness programmes to enhance their understanding of social finance, its
potential impact, and the importance of integrating social factors into investment decisions can bringsignificant added value. This can be achieved through workshops, training sessions, and awarenesscampaigns targeting investors, financial institutions, and asset managers.
Supporting research and innovation. Investing in research and innovation is crucial to advance themeasurement and valuation of social impact. To this end, fostering partnerships between academia,
research institutions, and financial industry stakeholders is an important step towards thedevelopment of methodologies, tools, and frameworks for assessing and quantifying social outcomes.
Promoting integrated impact reporting. Companies and issuers can be encouraged to adopt
integrated reporting frameworks that consider both social and environmental impacts alongside
financial performance. Integrated reporting provides a holistic view of an organisation's value creation,
helping investors make informed decisions and promoting accountability for social and environmental
outcomes.
Discussing a standard-neutral classification of social finance. In line with the G20 approach, suchinternational dialogue on a classification system could focus on two dimensions: (i) social objectives,(ii) indicators to measure contributions of economic activities to these objectives. Such a classification
could in turn facilitate cross-border social investments.

22Annex 1- Jurisdictional and institutional frameworks andinitiatives
IPSF members and observers
Chile- Sustainable Bond Framework (2020)
Unlike other jurisdictions where green and social bonds are tackled separately, Chile covers both under
the umbrella of its Sustainable Finance Framework, strengthening its commitment to the SDGs, whichgoverns its sovereign bond issuances. Regarding the group that could benefit through projects
associated to social bonds, the current structure considers the most vulnerable portions of the Chileansociety as defined by household income and other social adjustments. In the current definition, thetarget population that could benefit includes up to the 60% most vulnerable population. Tax andoperational expenditures, investments in real assets and maintenance costs for public infrastructure,
intangible assets, as well as transfers of capital to public or private entities are considered eligible
expenditures.
The Framework identifies the following categories for eligible projects, all contributing to at least one
SDG:
•
•
•
•
•
•
•
•
•

Projects supporting the elderly or those with special needs in a vulnerable situation. To be
eligible, a project should finance basic pensions for the most vulnerable.
Subsidies or contributions for low-income families.
Monetary support for human rights victims.
Projects generating employment in vulnerable communities.
Projects on affordable and quality housing benefitting vulnerable families.
Projects on higher quality education and access to education for vulnerable children and young
people.
Projects on access to healthy and nutritious food for the most vulnerable participants of theeducation system.
Projects on the development of a preventive and curative healthcare network, including in thecontext of public health emergencies.
Projects to alleviate or prevent unemployment stemming from socioeconomic crises, such as
natural disasters or pandemics, including through the potential effect of financing SMEs andmicrofinances.

Additionally, activities that violate indigenous rights are excluded from the scope of eligible projects
under both the green and the social sectors of the framework.
The Sustainable Bond Framework sets out the procedure for evaluation and selection of projects. For
social issuances, the Department of Social Policies and the International Finance Unit of the Ministryof Finance are jointly responsible for selections. Finally, the authorities are bound to report on the
allocation of net proceeds and the conformity of supported projects with the eligibility criteria.
Additionally, an annual impact report is to be drafted on the basis of quantitative indicators.

23

Japan- Social Bonds Guidelines (2021)
The Financial Services Agency, Japan (JFSA) in 2021 published a set of Social Bond Guidelines. These
are based on the four components of ICMA’s Social Bonds Principles, with the content and key
recommendations of each component being equivalent to those described in the SBP. In addition,
Japan-Social Bonds Guidelines include examples of social projects and target groups to facilitate reader
understanding as follows.
Under use of proceeds, the JFSA builds on the examples of social project categories and beneficiarytarget populations in the ICMA SBP and elaborates on more sub-categories that can be considered tohave a positive social impact. To be more specific, ‘affordable basic infrastructure’ includes not only
clean drinking water, sewers, sanitation, transport, and energy, but also disaster prevention,
mitigation, and recovery, resilience of aging infrastructure, and ICT infrastructure. ‘Access to essential
services’ is extended to parenting and long-term care support, welfare and essential services for aging
populations, and ICT. Under the employment label, socio-economic crises arising from epidemics andregional revitalisation are included, while ‘food security and sustainable food systems’ encompasses
advanced technology use for food systems and the improvement of eating habits and management of
pre-symptomatic disease. Finally, the promotion of diversity, empowerment of women, work-stylereform, promotion of barrier-free access and universal design, and preventive care count as part ofsocioeconomic advancement and empowerment.
The target populations are also expanded to include more categories of natural and legal persons. As
such, workers with caring responsibilities, companies and residents in geographically and socioeconomically disadvantaged areas, as well as SMEs affected by crises (such as public health crises) are
specifically covered under the Guidelines.
In terms of reporting, the Guidelines state that issuers should disclose information regarding the
expected social benefits of projects by using appropriate indicators and recommends that issuers,
where feasible, use quantitative indicators. To provide disclosure examples and materials that issuers
can refer to, in 2022, the JFSA published the ‘Examples of Indicators for Social Benefits of Social
Projects’ as Annex to the Guidelines based on discussion with the Cabinet Office, relevant ministries
and agencies.
In order to improve transparency, it has also provided a framework for issuing social bonds and reviewsby external organisations as key recommendations.
India- Social Stock Exchange (2022)
Following a public, stakeholder, and expert consultation, India implemented the Social Stock Exchange(SSE) Framework as a segment under the existing stock exchanges. The aim of the Social Stock
Exchange is to channel financial flows into activities geared towards social impact.
Listed entities must demonstrate that social intent and impact are their primary goals by focusing onsocial objectives for underserved or less privileged populations or regions. To be eligible, anenterprise’s activities must additionally pursue a list of eligible objectives. In addition to the SDGs,
these include objectives based on national policy and law, such as support for the livelihoods of ruraland urban poor, disaster management, financial inclusion, the bridging of the digital access divide, thepromotion of sports, and the welfare of migrants and displaced persons. Finally, 67% of the24enterprise’s activities should be eligible activities for the target population based on revenue,
expenditure, or customer base.
Non-profit organisations can also be registered on the SSE and can issue, in association with Alternative
Investment Funds, zero coupon principal bonds and development impact bonds, which are linked tosocial rather than financial returns.
Social enterprises on SSE will be required to make disclosures at the initial stage as well as on periodic/ annual basis on various aspects including governance, financials and the social impact createdthrough an impact score card. The impact report envisages measurement from the perspective ofintended beneficiary which the social enterprise seeks to serve including the reach, depth andinclusiveness of the impact being generated23.
The impact disclosures will be mandatorily subject to social audit. The Institute of Chartered
Accountants of India (ICAI) has set up a self-regulatory organisation which will empanel Social Auditors.
ICAI has issued Social Audit Standards24 for various social activities (such as eradicating hunger andpoverty, promoting health care and education, etc.) which include key metrics for evaluating or
assessing any project or programme undertaken in these areas.
Argentina Sustainable Sovereign Financing Framework (2023)
Argentina's Sustainable Sovereign Finance Framework - which is aligned with the main standards inthe field25 - establishes criteria to guide the issuance of green, social and/or sustainable bonds and/or
loans in both local and international debt markets. With this, Argentina seeks to channel resources
towards programmes that contribute to the fulfilment of the country's environmental and social
objectives, environmental protection, resilience to climate change, reduction of poverty and otherinequalities, ensuring gender equality and diversity, as well as increasing the country's competitivenesson a sustainable development path. The goal is to achieve low-carbon growth aligned withcommitments made in international environmental and social agreements, including the Paris
Agreement and the SDGs of the 2030 Agenda.
The Framework identifies the following categories for eligible projects, all contributing to at least one
SDG:•

Eligible environmental programmes: (1) Sustainable use and management of water resources;(2) Climate change adaptation and mitigation; (3) Conservation of ecological systems andbiodiversity; (4) Energy efficiency; (5) Renewable energy; (6) Sustainable forest management;(7) Sustainable agricultural production; and (8) Sustainable mobility.

•

Eligible social programmes: (1) Access, quality and permanence in the education system; (2)Access to a comprehensive and quality health system; (3) Socio-economic advancement andempowerment of people from vulnerable and minority groups; (4) Generation and promotion

23

SEBI has given guidance on the contents of the Annual Impact Report, available at:https://www.sebi.gov.in/legal/circulars/sep-2022/framework-on-social-stock-exchange_63053.html
24https://www.icai.org/new_post.html?post_id=18823
25
The Framework is aligned with the Green Bond Principles 2021, the Social Bond Principles 2021, and theSustainable Bond Guidance established by ICMA. In addition, it is aligned with the Green Lending Principles 2021
and the Social Lending Principles 2021 established by the Loan Market Association, Loan Syndication and Trade
Association and Asia Pacific Loan Market Association.

25

of employment and development of regional economies; (5) Access to affordable housing andbasic infrastructure; (6) Promotion of gender equality and diversity; and (7) Sustainable foodsecurity.
The evaluation and selection process of projects eligible for thematic funding instruments will be
carried out by an Evaluation and Selection Committee defined and formed within the Ministry of
Economy of the Nation (MECON).
With respect to the exclusion list, any programme, project, asset or expenditure that involves/implies
in any way the following activities shall be excluded from Eligible Green Expenditures and Eligible Social
Expenditures:
•
•
•

•
•
•
•

Exploration, production and distribution of fossil fuels;
Energy generation based solely on the burning of fossil fuels;
Production and/or commercialisation of any product or activity considered illegal
under national laws or regulations, as well as international conventions andagreements to which Argentina is a party;
Deforestation or degradation of forests;
Alcoholic beverage, arms, tobacco and gambling industries;
Activities in protected areas or activities that violate indigenous rights;
Child labour or forced labour.

The Sustainable Sovereign Finance Framework was rated by Sustainable Fitch during its second-party
opinion with its highest rating, "Excellent", as it is fully aligned with all major international principles
and guidelines. In addition, the practices inherent in the framework meet excellent levels of rigour andtransparency in all aspects and are well above market standards. The framework has aligned theeligible social and environmental categories with the ICMA Green Bond Principles, Social Bond
Principles and Sustainable Bond Guidance, as well as their alignment with the Loan Market Association,
Loan Syndication and Trade Association and Asia Pacific Loan Market Association Green Lending
Principles and Social Lending Principles. Both the Framework and the Second Party Opinion will be
published on the website of the Ministry of Finance.
The allocation of funds will be reviewed annually until full allocation of resources by independent
external auditors, as well as in case of material changes. This external verification will be published in
the annual report of the thematic instrument.
Morocco- Green, Social and Sustainability Bond Guidelines (2018) and Gender Bond Guidelines(2021)In June 2018, the Moroccan Capital Market Authority (AMMC), with the support of the International
Finance Corporation (IFC), issued Guidelines on Green, Social and Sustainability Bonds26. It follows fromthe Guide on Green Bonds published by AMMC in November 2016, in collaboration with IFC. The guide
aimed to open more opportunities for financing sustainability by introducing two new types of
instruments: Social Bonds and Sustainability Bonds. The guidelines provide an overview of the26

AMMC, 2018, Green, Social & Sustainability Bonds : Instruments de Financement du Développement Durable
Guide de l’AMMC,
https://www.ammc.ma/sites/default/files/AMMC_%20Guide%20sur%20les%20Green%2C%20Social%20and%2
0Sustainability%20Bonds.pdf

26

principles that issuers need to comply with for each category and offer instructions on the steps
required to certify these bonds. The reference to socially related aspects is made either through thedistinct category of Social Bonds or the Sustainability Bonds category, which intends to finance orrefinance green and social projects or integrate the potential social benefits of a green project.
The Guidelines are based on ICMA’s Social Bond Principles four components with the content and key
recommendations of each component matching those described in SBP.
Regarding use of proceeds, the Guidelines fully adopt the definition as being stated in SBP - social
bonds are bonds whose issue proceeds are exclusively allocated to the financing or total or partialrefinancing of new projects or existing projects aimed directly at resolving or mitigating social problems
specific and/or targeting a positive social impact, specifically but not exclusively to benefit of one ormore target population(s). Social projects eligible for funding by a social obligation must present clear
social benefits that can be evaluated, and quantified, if possible, by the issuers.
The concept of the target population becomes decisive in the context of Social Bonds. It is mandatory
for the issuer of a Social Bond to clearly define the target population(s) who will benefit from the social
outcomes of the projects associated with the issuance.
The Guidelines adopt the eligible project categories and target population list as stated in SBP and link
the eligible projects to SDGs.
Categories of Eligible Projects
according to the ICMA Social Bonds Principles (non-exhaustive list)

Potential match to
SDGs

Affordable basic infrastructure: such as drinking water, sanitation,
network wastewater disposal, transport, energy

Access to basic services: such as health, education, professional
training, financing, and financial services

Social housing

Job creation: including through the potential effect of financing SMEs
and microfinanceFood Security
Socio-economic advancement and empowerment

Examples of Target Population List27

according to the ICMA Social Bonds Principles (non-exhaustive list)

Living below the poverty line
Excluded and/or marginalised populations and/or communities
Vulnerable groups, including as a result of natural disasters
People with disabilities
Migrants and/or displaced persons
UndereducatedUnderserved, owing to a lack of quality access to essential goods and services
Unemployed populations

On project evaluation and selection, the Guidelines recommend the issuer to clearly communicate thesocial objectives, the process by which the issuer determines how the projects fit within the eligible
Social Project categories identified and the related criteria.
The Guidelines adopt the SPB’s recommendations for crediting the net proceeds of the social bond toa sub-account and being tracked appropriately to manage proceeds.
The Guidelines adopt SBP’s recommendations on reporting and state that consistent disclosure
regarding Green, Social, or Sustainability bonds should be included within the ESG report, to bereleased annually by issuers conducting public offerings under the revised regulations in Book III of the
AMMC circular. The disclosure is mandatory and may cover all or part of the aspects of the bond.
The Guidelines also include the prior to-issuance process of a bond, the authorisation process by the
AMMC and the particular attention to the clearly defined target population for the case of social bonds,
the obligations throughout the life of the bonds and answering frequently asked questions.

In March 2021, the AMMC with the support of Financial Sector Deepening Africa, published guidelines
on gender bonds.27 The guidelines highlight the importance of gender equality and women
empowerment for the achievement of all SDGs, and hence the relevance of these topics for sustainablefinance. Gender bonds seek to achieve gender equality and women’s empowerment through financing
projects and economic activities, as well as supporting or encouraging corporate behaviour andpolicies, that are aligned with this objective. .
The Guidelines build on AMMC’s Green, Social & Sustainability Bonds Guidelines published in 2018 andare based on the ICMA Social Bond Principles and Sustainability-linked Bonds Principles (SLBP).

27

AMMC Gender Bonds guidelines, March 2021,
https://www.ammc.ma/sites/default/files/Guide%20sur%20les%20Gender%20bonds_0.pdf

28

In addition to the eligible projects referenced in the Green, Social & Sustainability Bonds Guidelines,
the Guidelines reference the following key international gender frameworks as guidance on theselection of Use of Proceeds activities for social bonds and impact indicators for Sustainability-linked
Bonds:••

UN Women empowerment principles28:
o Principle 1: Establish high-level corporate leadership for gender equalityo Principle 2: Treat all women and men fairly at work – respect and support human rights
and non-discriminationo Principle 3: Ensure the health, safety and well-being of all women and men workers
o Principle 4: Promote education, training and professional development for womeno Principle 5: Implement enterprise development, supply chain and marketing practices
that empower womeno Principle 6: Promote equality through community initiatives and advocacy
o Principle 7: Measure and publicly report on progress to achieve gender equality
The 2X Challenge:o Women entrepreneurshipo Women employmento Women consumptiono Investments through Financial Intermediaries

A decisive part in the gender bond issuance is defining the target population which: (i) in direct
financing is usually composed of the issuer women employees, board members, managers and can befurther extended to suppliers and customers, and (ii) in indirect financing can target various level ofwomen populations such as:•••

Low-income women, through providing microfinance loans
Women employees, through lending to companies that demonstrate gender equality aligned
behaviour
Women entrepreneurs and leaders, through providing loans to women-owned or led SMEs

The managing of proceeds, reporting and verification follow the process as SBP and AMMC’s Green,
Social & Sustainability Bonds Guidelines have outlined. Finally, the Guidelines provide answers tofrequently asked questions.
European Investment Bank- Environmental and Social Standards (2022)
The EIB Group’s Environmental and Social Sustainability Framework is based on EU and internationallaws and standards. It introduces 11 standards that apply to all projects financed by the EIB at the levelof due diligence and monitoring. These must be consistent with ‘Minimum Safeguards’ principles andrequirements.
8 of the 11 standards address, at least partially, social aspects of sustainability - 3 on the governanceof projects, 2 on labour conditions, and 3 on projects’ impact on the surrounding socioculturalenvironment.

28

https://www.weps.org/

29

Standard 1 requires that environmental and social considerations be addressed in decision-making
through appropriate impact assessment and risk management, while Standard 11 adapts thisrequirement to sub-projects supported through intermediated finance. Standard 2 prescribes
engagement with stakeholders in the assessment and management of such impacts and risks.
Standard 8 introduces labour rights requirements based on ILO treaties and the European Pillar ofSocial Rights. Relatedly, Standard 9 deals with the health and safety of workers and the surrounding
community.
Standard 6 tackles project-induced involuntary resettlement and Standard 7 addresses
disproportionate impacts on vulnerable groups, indigenous peoples, and on the basis of gender.
Finally, Standard 10 confers a responsibility to protect and conserve cultural heritage.

Other relevant frameworks in non-IPSF jurisdictions
Colombia's Sovereign Green, Social and Sustainable Bond framework
Colombia’s sustainable finance market is the seventh largest sustainable debt market in Latin America
and the Caribbean (LAC) with USD 2.4 billion issued across the GSS+ spectrum as of the end of 2022.
The green theme is the most popular by volume with 16 deals from nine issuers and cumulative
volumes of USD 1.3 billion, or 53.7% of the country’s GSS+ market. Cumulative issuance of social andsustainability bonds follow closely behind at USD 620 million (26.3%) and USD 343.2 million (14.5%)
respectively. While sustainability-linked bonds currently comprise the smallest portion of the market,
they possess significant potential for growth and could contribute substantially to Colombia'stransition to a net-zero economy.29
Colombia has a bond framework that includes both green and social issuances. In terms of social andeconomic development, the main objective is to reduce poverty by closing inequality gaps throughout
the national territory and among the various groups that make up Colombian society, with special
attention to women and girls, the migrant population, ethnic groups, people with disabilities, young
people and the population living below the poverty line as an essential group.
In terms of social challenges, the country has focused its efforts on the eradication of poverty, bothmonetary and multidimensional, developing strategies for the social and productive inclusion of the
population.
The analysis of poverty of the Colombian population combines and incorporates these two definitions:••Monetary poverty is understood as the generation of income and income and resources
necessary to access a minimum amount represented in consumption baskets.
Multidimensional poverty analyses access to basic services in health, education, work andhousing, conditions of children and adolescents.

The following can be considered manifestations of poverty: hunger, malnutrition, lack of decent
housing and limited access to other basic services such as drinking water and sanitation, and to29

https://www.climatebonds.net/files/reports/colombia_sustainable_state_of_the_market_2022_english.pdf

30

essential services such as education and health. These manifestations will define their subsequent linesof action and relevant indicators.
In addition, to meet these objectives, Colombia has developed a system of group classification in order
to be able to determine more precisely how vulnerable they are, for example by calculating income orplace of residence.
The lines of action are as follows: Education; Peace building; Employment generation and productivity
promotion, including MSMEs; Decent and affordable housing, Access to basic services; Food andnutritional security; and Effective access to and quality of health services.
The Ministry of Finance and Public Credit is responsible for verifying that the amount associated with
Eligible Green and Eligible Social Expenditures is equivalent to the net amount received by the issue,
with the information provided by the National Planning Department, ministries or entities one year
after the issue. In addition, an independent verification by Moody's ESG Solutions will be conducted.
Colombia- BancoIndex Social Bond Framework
Bancóldex, also known as the Colombian Foreign Trade Bank S.A., is a state-owned development bankfocused on providing financial solutions to bolster the advancement of Colombian businesses acrossvarious scales and industries. As part of its strategy, Bancóldex has introduced a framework for social
bonds, utilizing the proceeds from these bonds to fund or refinance expenditures associated with thefinancing of micro and small enterprises. The primary goal of this effort is to encourage financial
inclusivity, gender equality, and local economic growth.
Eligible investments for Bancoldex include all credit operations in which the beneficiary is considereda micro or a small enterprise (MSE). These allocations are divided into four distinct target groups: microand small enterprise financing, business owners located in rural areas, women business owners, or
victims of armed conflict business owners.
Use of Proceeds
category

Eligible Projects

Micro and small
enterprise financing

Micro and small
enterprisefinancing andfinancial inclusion

Rural businessfinancingVictims of armed
conflict-owned
business financing
Women-owned
business financing

SDG

8.Decent workand economic
growth

9.Industry,Innovation,
andInfrastructure

10.Reduced
inequalities

SDG Target

8.3 Promote developmentoriented policies that support
productive activities, decent job
creation, entrepreneurship,
creativity, and innovation, andencourage the formalization andgrowth of micro-, small- andmedium-sized enterprises,
including through access tofinancial services.
9.3 Increase the access of smallscale industrial and otherenterprises, in particular indeveloping countries, to financial
services, including affordable
credit, and their integration intovalue chains and markets
31

Women-owned
business financing

5. Gender
equality

10.3 By 2030, empower andpromote the social, economic andpolitical inclusion of all,irrespective of age, sex, disability,
race, ethnicity, origin, religion or
economic or other status
5.1 End all forms of discrimination
against all women and girls
everywhere.

With regard to project evaluation and selection, the coordination of the Social Bonds Committee will
be overseen by the Financial and Administrative Vice-Presidency of the bank, with participation from
representatives of the Treasury Department, Special Project Management, and the Office of New
Products and Services. Additionally, the Committee will include a member of the Commercial VicePresidency, actively involved in the development of the relevant initiative. Evaluation of the operations
funded through the issuance's proceeds will be conducted by the Bancóldex Social Bond Committee
to ascertain their compliance with the specified eligibility and exclusion criteria.
The funds from the Social Bond will be supervised by the Bancóldex Treasury Department and will beallocated towards supporting either current or new loans. The funds awaiting disbursement will be
securely held in cash or other highly liquid and low-risk instruments, strictly dedicated to eligible social
projects. The project's eligibility will be ensured through an internal statistical tracking system linked
to the Bancóldex central banking system, allowing the bank to authenticate the information pertaining
to each credit operation.
Bancóldex will annually disclose the utilisation of funds from the issuance, providing in the reportdetails on the number of recipients, average loan amounts, distribution based on social categories, andthe regional allocation of resources.
Furthermore, in the annual report on the ‘Utilisation of Social Bond Proceeds’, in addition to financial
details, Bancóldex will highlight the positive social impacts of projects by selecting up to 4 illustrative
cases. These cases will be chosen based on their significant contribution to the objectives of the bond,considering the financing utilised and the social impact achieved.
Finally, in terms of verification, Bancóldex engaged Sustainalytics to review its Social Bond Framework
and provide a second-party opinion on the alignment of the framework with the Social Bond Principles
2017, as administered by ICMA, and the framework’s social credentials.
Mexico’s SDG Bond Framework30
The issuance of SDG Sovereign Bonds backed by the SDG Sovereign Bond Framework allows thegovernment to identify eligible projects, assets and expenditures that support Mexico's most pressing
SDGs. This Framework is designed to align with the latest ICMA Sustainable Bond Guidelines (2018). It
30

https://www.finanzaspublicas.hacienda.gob.mx/work/models/Finanzas_Publicas/docs/ori/Espanol/SDG/road
show_desarrollo_sostenible.pdf

32

is also designed to be in line with the spirit of the EU Green Bond Standard. In this regard, theframework details the four core components of the ICMA’s Green Bond Principles and Social Bond
Principles, 2018 edition.
The Framework includes geographic eligibility criteria to prioritise vulnerable populations living in
disadvantaged and landlocked areas. This criterion builds on national authorities' "priority area" zoning
policies with a focus on the "Social Gap Index", to further refine the target populations. The Social Gap
Index consists of eleven sub-indicators. The design of this geospatial eligibility criterion targets the final
beneficiaries of vulnerable population groups, including those in extreme poverty, the indigenous
population, the elderly and children. The use of resources in these areas is eligible for projects thatmeet the criteria of the Social Gap Index (education, health and basic habitat services). Not all SDGs
have been targeted within the Framework. The selected SDGs are those where tangible SDG
contributions have been identified against budgetary expenditures (zero hunger; health and wellbeing; quality education; clean water and sanitation; affordable and clean energy and climate action).
Ecuador’s Social Bond Framework for Affordable and Decent Housing31
The ‘Casa para Todos’ programme - which aimed to address the housing deficit of almost half of thecountry's households (67% in rural areas and 38% in urban areas) - was financed through the issuanceof the first sovereign social bond of the Republic of Ecuador. This bond was also the first sovereignsocial bond in the world.
The proceeds of the bonds were used to support the government's programme to diversify sources offinancing for access to affordable and decent housing and to reduce the country's housing deficit. In
this way, the resources were used through the Ecuadorian financial system, and through asecuritisation scheme, to grant mortgage loans at a preferential interest rate of 4.99%. Under thismechanism, it was possible to generate a supply of these credits for around USD 1.35 billion, in favourof around 24.000 middle and low-income households.
The Framework establishes the procedure for the evaluation and selection of projects, which is carriedout by the Intermediary Financial Institutions (loan risk analysis: solvency, debtor's resources,
examination of the property proposed as collateral, its value and the environmental risk assessment
determined by an accredited independent expert) and the Mortgage Securitisation Company (acted as
financial and legal structurer of the securitisation mechanism of the mortgages associated with the
Eligible Loans, being responsible for reviewing that the financed loans complied with the applicableeligibility criteria). Exclusion criteria were determined by location, non-compliance with local
regulations and/or environmental risk issues.
The allocation of resources has a term of 60 months, which is justified by the life cycle of the project.
The Issuer commits to report annually and in a transparent manner on the allocation of the Bond funds
and the social benefits (results) of the programme until their full allocation.
The bond was backed by a guarantee proposed by the Inter-American Development Bank (IDB). Whichattracted international investors and reduced the cost of financing, thanks to the backing of a AAA-31https://www.finanzas.gob.ec/wp-content/uploads/2019/11/Marco_Bono_Ecuador_ESP.pdf

33

rated supranational entity. It was aligned with four of the 17 SDGs: ending poverty, clean water andsanitation, reducing inequalities, and sustainable cities and communities.

Overview of aggregated sovereign frameworks
The graph below shows the SDGs detected (by ranking) when aggregating data from all Social or
SDG/Sustainable sovereign bond frameworks including Mexico, Peru, Chile, Guatemala, Uzbekistan,NDB SDG and Indonesia SDG. The graphs illustrate that, together, environmental SDGs comprise 37.2%of the use of proceeds in SDG and social bond issuances, while SDGs targeting inequality and poverty
comprise in total 21.2%, recognising the need for strengthening the social dimension of sustainable
development and enhancing policy coherence within social sectors. This includes poverty eradication
strategies, policies to promote employment and decent work and social inclusion, policies to enhanceaccess to quality education, basic healthcare, safe drinking water, sanitation, group specific policies –youth, older persons, persons with disabilities, indigenous peoples, etc.

Source: European Commission SDG Knows tool, 2023.

The graph below illustrates that targets focusing on energy and climate change within SDGs 8 and 1
are the most relevant ones with 27.7%, followed by SDG 7, sustainable development with 11.3%.
Economic growth-related targets gain the most traction amongst SDG targets in social bond issuances,demonstrating the wide financing gap between what is flowing through social expenditure and whatis ultimately needed to meet the SDGs by 2030. It further demonstrates how the social market is not
limited to explicitly labelled social bonds, where corporates have eligible social expenditures, investors
incorporate those alongside green expenditures. Findings suggest that tackling climate change andsocial inequalities is interlinked and should be viewed within a multiplier effect.

34

Source European Commission SDG Knows tool, Target
2023. SDG
SDG 1

1.1 Eradicate Extreme Poverty
1.2 Reduce Poverty by at least 5%
1.3 Implement social protection systems

SDG 8

8.1 Sustainable Economic Goals
8.3 Promoting policies to support job creationand growing enterprises
8.5 Full employment and decent work withequal pay
8.10 Universal access to banking, insurance andfinancial services

SDG 1616.4 By 2030, significantly reduce illicit financial
and arms flows, strengthen the recovery andreturn of stolen assets and combat all forms oforganised crime
16.5 Substantially reduce corruption andbribery in all their forms
35

16.6 Develop effective, accountable andtransparent institutions at all levels
The most relevant objectives for sovereign social issuances to date are SDG 8 (Decent Work andEconomic Growth), SDG 16 (Sustainable Development) and SDG 1 (End Poverty), which together
comprise 60.5%, reflecting the continued focus on SDGs 8 and 1 in social bonds issuances. The overall
result is in line with the above analysis of SDGs 8, 16 and 1 being amongst the most used SDGs.

36

37

SDG
Eligible Category Potential Impact[
Target Metrics
Eligible
Category
Potential
ImpactMetrics
Access toaffordablehousing,
education
andessential
healthservices

MexicoPeru

Uzbekistan

Indonesia

NDB(China)Guatemala

Chile

Argentina

EIB

X

X

1]

4.1.1

• Number of students reached(enrolment rate)

4.5.1• Number of students reached withdisabilities and special needs

X

4.A.1

• Number of education facilities
and / or initiatives

X

4.C.1

• Number of teachers trained

X

X

X

X

X (students form disadvantaged
socio-economic background)XX
X (number of education staff
employed by the involved
institutions)• Area of classroom space that was
built, converted, or expanded foruse within educational facilities
(m2)

X

X

X

• Number of job opportunities
created• Number of schools with access tobasic services and amenities
including, but not limited to

X (square meters created or
upgraded)• Decrease in proportion of youth(aged 15-24 years) not in
education, employment or training• Increase in employment rate

x

X

X
X

X
X

X

38

electricity, internet, computers,
infrastructure and materials forstudents with disabilities, basic
drinking water, sanitation facilities;
and basic handwashing facilities (asper the WASH indicator definitions)• Number of jobs created as
related to education, housing andhealth infrastructure• Number of beneficiaries
disaggregated by gender• Number of beneficiaries
disaggregated by level of i
• Number of homes built,
disaggregated by new or improved
homes• Number of beneficiaries
disaggregated by type of hospital
network

Sustainab
le WaterSupplyX

X (number of education staff
employed by the involved
institutions)

X (Volume of patients treated)
X (Population covered by improved
health services)

X (Number of households in new or
refurbished social and affordable
housing Units)

X (Number of social and affordable
housing units built or refurbished)•Number of vulnerable students
benefited, broken down according
to level of education

X•Number of beneficiaries broken
down according to level of
educationX•% of the population that has daily
access to piped water and basic
sanitationx

X (students form disadvantaged
socio-economic background)XX

X (higher education ISCED 5-8)

x

39

and
Waste
Water
Management• Yield improvement of basic crops
in areas with irrigation
infrastructure• Reduction in water consumption

X

X

X

• Km of wastewater piping installed• Quantity of wastewater treated• Volume of potable watersupplied• Volume of water collected and /or treated (m3)
• Increase water efficiency ofsystems (% reduction in water
consumption/loss)• Number of users with access toclean drinking water• Annual volume of clean drinking
water in m3 supplied for humanconsumption• Other relevant indicators basedon the projects consideredX(reducti
on in
water
waste)

X
X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X (Persons benefitting from safe
drinking water)

X

X

X(Capacityof watertreatment
plant
constructe
d or
rehabilitated (m3/))X

X

X

X (Capacity of water treatment
plant constructed or rehabilitated(m3/day)

X (Persons benefitting from
improved sanitation services)40• Number of people benefitted bytraining programmes• Number of efficient pumps
installed• Km of new water pipes installed

X

X

X

X

X

X

X

X (Length of water mains or
distribution pipes built or upgraded(km)• Number of new reservoirs / flood
defences built

X

X

X

X (Length of combined collectors
rehabilitated (km)X Capacity of retentions or roomfor-river areas constructed or
rehabilitated (m3)

• Number of studies completed

Access to
Essential
HealthServicesX• Volume of waste / energy / water
saved / treated/ recycled• Number of evacuation shelters
Number of people and/or
enterprises benefitting frommeasures to mitigate theconsequences of floods anddroughts

X

X
X

X

X

• Number of hospital beds per
capital

X

X

X

X

X

• Number of patients reached

X

X

X

X

X

X
X (Persons facing reduced risk offlooding)

X (Capacity of retentions or roomfor-river areas constructed or
rehabilitated (m3)X (Length of combined collectors
rehabilitated (km))

X

X (Volume of patients treated)
X (Population covered by improved
health services)• Number of places and beds

X

X

X

X

X
41

Deliveryof
Essential
Transport
ation
Services
Supportfor
MSMEs
and social
programs
toalleviate
and/orprevent
unemployment•% population with an inability toaccess medical care

X

X

X

X

• Reduction in maternal mortality
and neonatal mortality Increase in
the number of:• Hospitals and other healthcare
facilities built / upgraded• Medical consultations per year
(General Practitioners, Specialists)• Number of patients treated byprogram / vaccinations

X

X

X

X

X (Volume of patients treated)
X (Population covered by improvedX

health services)X• Length of railway construction
with equitable access (km)X

X

• Increase in passenger km

XX• Length of rail construction• Number of MSMEs supported bypublic programs• Number of women-led MSMEs
supported• Number and value of publicly
financed loans to MSMEs• Number of jobs created as
related to MSME competitivenessprograms

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

42

Sustainab
leagricultureFinancial
InstitutionsSocialHousing• Area (hectares) cultivated withagroforestry and / or silvopastoral
systems• Area (hectares) of plantations
and natural forest under active
monitoring• Area (hectares) cultivated withdrip irrigation system• Area (hectares) cultivated withorganic fertilizers• Area (hectares) of rice converted
to other crops• Number of people benefited by
the training programs• Number of studies completed

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X

X
X

• Number of people benefittingfrom access to essential financing
and financial services• Number of job opportunities
createdX• Increase in employment rate

X

• Number of beneficiaries

XX

X (Number of households in new or
refurbished social and affordable
housing
units)• Number of residences
constructed / renovatedSustainab
le WasteX• Volume of waste saved/ treated/recycled

X

X

X (Number of social and affordable
housing units built or refurbished)

X

X

43

Managem
ent
Ensurefood
security
andaccess toessential
services• Target population recipients byprogramX• Number of claims processed p.a.
and % of claims approved

X

X

X
X

44

How impact indicators are measured
On use-of-proceeds bonds, ICMA principles and market standards require two different post-issuancereports by the issuer: i) an allocation report and ii) an impact report. Allocation reports focus on
demonstrating that the proceeds were allocated to eligible expenses and provide insights to thefinancing pipeline supported by the thematic issuance. They are conducted annually and certified byauditors before being presented to investors. Impact reports, on the other hand, follow lessstandardised routes and countries can apply different guidelines for this purpose.
Although in many cases the issuer’s M&E team would handle this task, some sovereign issuers haveappointed external agencies, such as the UN Development Programme, to deliver the impact report.
Some common practices emerge when comparing the sovereign frameworks. Some frameworks
provide more concrete details on how impact is measured than others. For example, Mexico’sframework provides a comprehensive overview and digital tool for progress tracking, while others
indicate that an annual report will be provided. The reporting consolidates information regarding socialand environmental indicators that public entities that are managing the proceeds must report on withrespect to the selected projects with allocated bond resources. This is often done on the basis of KPIs.
Sovereigns have employed various tools to gather data on progress achieved, such as:1) Digital systems. This is an emerging practice that allows governments to monitor and provide
timely information to track the progress of indicators. Mexico, for example, has implemented
a digital tool for progress tracking.
2) ICMA Harmonised Framework for Impact Reporting for Social Bonds. The frameworkcomprises six main principles in reporting, in which the issuers should put in place a formalinternal process for tracking of proceeds, report the use of proceeds annually, identify thesocial project categories to which the proceeds have been allocated, identify the target
population for which positive outcomes are expected, report output, outcome and/or impactof the projects.
3) SDG Impact Assessment Tool. Using this tool requires a five-step process from gathering
available data to recommending improvements based on the impact assessment.

45

Annex 2- Use cases from IPSF members and observers (andbeyond)EU’s Support to mitigate Unemployment Risks in an Emergency (SURE)
In the wake of the Covid-19 pandemic, the European Commission established the European Instrument
for temporary Support to mitigate Unemployment Risks in an Emergency (SURE) to fight the negativesocioeconomic consequences of the pandemic. SURE supported short-time work schemes and similar
measures, as well as health-related measures, to help EU Member States protect jobs and in this way
shield the workforce against the risk of unemployment and loss of income.
With a total envelope of EUR 100 billion in the form of favourable term loans granted from the EU toaffected Member States, SURE is the world’s largest social bond scheme to date and accounted for
16% of the global social bond issuance in 2021. SURE, being an issuance under the EU’s own resources,
was structured to protect the EU budget. Member States provided guarantees for a quarter of the total
financial envelope with the remainder being guaranteed by the EU budget.
Eligible Social Expenditures targeted, among others, ‘employment’ and ‘access to essential services’,
as well as good health and well-being (SDG 3) and decent work and economic growth (SDG 8). The
target population was defined as ‘the general population impacted by the COVID-19 pandemic in theMember States’.32 The flexibility offered by the SURE instrument in practice allowed Member States
to adopt different approaches, best suited to the specific circumstances of their labour market and theimpact of the COVID-19 pandemic on it.
The European Commission performed evaluations of the Member States requests to assess whether
there was a sudden and severe increase in public expenditure directly related to short-time work
schemes and the COVID-19 pandemic. The terms of the loan were defined on the basis of thisassessment. Beneficiary Member States were bestowed with a regular reporting obligation, allowing
the monitoring of the use of SURE proceeds in planned public expenditure.
Five half-yearly reports were issued during the run of SURE, detailing the allocation of SURE Social Bond
proceeds across EU Member States and across the types of Eligible Social Expenditure, as well as theimpact reported by Member States. Moreover, while ex-ante or ex-post controls were required, inseveral cases Member States performed both ex-ante and ex-post controls.
At the height of the COVID-19 pandemic in 2020, SURE benefitted approximately 31.5 million citizens
and 2.5 million companies, amounting to almost one third of employment and more than a quarter ofcompanies in the beneficiary EU Member States.33 It is estimated that the EU’s policy response to the
COVID-19 crises prevented 1.5 million people from becoming unemployed, with schemes fundedthrough SURE Social Bonds likely contributing to this in large part.
A report by the European Court of Auditors concluded that the issuance of SURE Social Bonds allowed
the EU to support its Member States faster than it would under normal funding procedures, while
simultaneously cushioning the financial risk to the EU budget at a time of crisis.34
32

European Commission, EU SURE Social Bond Framework, 2020,
https://commission.europa.eu/system/files/2020-10/eu_sure_social_bond_framework.pdf.
33
European Commission, SURE after its sunset: final bi-annual report, 2023, https://economyfinance.ec.europa.eu/system/files/2023-06/COM_2023_291_1_en.pdf.
34
European Court of Auditors, Special report: Support to mitigate Unemployment Risks in an Emergency(SURE), 2022, https://www.eca.europa.eu/Lists/ECADocuments/SR22_28/SR_SURE_EN.pdf.

46

EIB’s Sustainability Awareness Bonds (SAB)The EIB issued the world’s first green bond in 2007 with its first Climate Awareness Bonds. In 2018, the
EIB issued its inaugural Sustainability Awareness Bonds which extended the approach from climatechange mitigation to further environmental and social sustainability objectives.
The EIB was the first issuer to tune the documentation of its sustainability funding instruments to the
EU Taxonomy Regulation. This allows investors to monitor consistently how the funds raised are being
used through audited allocation and impact reports. This provides a reliable sustainable investment
opportunity at the service of the Sustainable Development Goals. SAB sustainability objectives
establish a direct link to the EU Taxonomy’s environmental objectives as well as to social dimensionsof SDGs.
This business-driven entrepreneurial approach has taken the logic of the EU Taxonomy Regulation as
reference to increase transparency and accountability in social finance.
In 2021, around EUR 2 billion was allocated to disbursements to projects contributing substantially tosocial objectives, such as access to water and sanitation, health emergencies response andpreparedness capacity, universal access to affordable health services, and access to equitable andinclusive education.

Sustainability Awareness Bonds highlight the EIB’s growing engagement beyond EU borders at theservice of SDGs globally.

47

Proceeds from Sustainability Awareness Bonds are allocated to projects that meet eligibility criteria
which are aligned with the logic of the EU Taxonomy Regulation. In areas of environmental and social
sustainability not yet covered by the EU taxonomy, EIB has already started applying its own expertiseto data collection and reporting in line with the logic and structure of the taxonomy, thereby permitting
investors to monitor progress on this path. This means that the SAB project eligibility criteria are
structured to include criteria or processes for the assessment of ‘substantial contribution’, ‘nosignificant harm’, and ‘minimum social safeguards’. In addition, the SAB technical screening criteria for
substantial contribution are aligned with the logic of the technical screening criteria for substantial
contribution of Article 3 of the EU Taxonomy Regulation i.e. ‘structured to incorporate principles,
metrics and thresholds where possible and otherwise include qualitative criteria or processes for theassessment of substantial contribution’. In the area of ‘Do No Significant Harm’ and ‘Minimum
Safeguards’, the EIB has also compared (in 2021) for the first time its Environmental and SocialStandards with the provisions of Articles 17 and 18 of the EU Taxonomy Regulation, establishing an
accountable platform for further improvement over time.
The EIB’s approach is characterised by transparency and accountability as the annual SAB Framework35
is published and audited by a supervised auditor with a Reasonable Eassurance (ISAE 3000). The SAB
Framework includes the SAB project eligibility criteria, the SAB allocation report and impact report.36

Council of Europe Development Bank – Social Inclusion Bonds
The Council of Europe Development Bank (CoE Bank) in 2017 developed a framework for Social
Inclusion Bonds, revising it in line with ICMA developments. Social Inclusion Bonds were initially issued
as 7-year EUR-denominated bonds to support projects related to social housing, education and35

https://www.eib.org/attachments/fi/eib-sab-framework-2021.pdf
https://www.eib.org/en/investor-relations/publications/all/eib-sab-projects-2021 andhttps://www.eib.org/en/investor-relations/publications/all/eib-sab-impact-report-2021
36

48

MSMEs. With the advent of the Covid-19 pandemic, the scope of the Social Inclusion Bond Framework
was expanded to include health. Given CoE Bank’s mandate on displaced populations and refugees
since its creation in 1956, in April 2022 CoE Bank issued a EUR 1 billion Social Inclusion Bond to support
the (longer-term) needs of Ukrainian refugees in the Bank’s member states. The funds raised throughthe bond, in line with the Social Inclusion Bond Framework, could cover projects related to social
housing for low-income persons, education and vocational training, health and social care, and thecreation and preservation of jobs in MSMEs.37 CoE Bank also issued a USD 1 billion Social Inclusion
Bond for this purpose.38 This is a particularly interesting case, as it leverages common use of proceeds
eligibility categories for an issuance focusing explicitly and exclusively on refugees, a less common
target population.

Impact Investment Exchange (IIX) - Women’s Livelihood BondThe IIX launched its Women’s Livelihood Bond Series in 2017, making it the first gender bond in theworld to be listed on a stock exchange. To date, USD 128 million has been mobilised through 5 bondissuances to empower more than 1 million women and girls across emerging markets in Asia and Africa.

Morocco Gender Bond
The guidelines outlined in Annex 1 culminated in the inaugural gender bond issuance in Africa by
Banque Centrale Populaire (BCP), through a private placement bond of USD 20 million in December
2021, focusing on microfinance for women. Second Party Opinion was provided by Vigeo SAS39 which
confirmed the alignment of the issuance framework with the Social Bonds Principles.
BCO gender bond issuance 2021 (adapted from UN-Women)40
IssuerDescription

BanqueCentrale
Populaire(BCP)

Micro-credit loans
granted by Attawfiq
Micro-Finance, asubsidiary of BCP;
Micro-credit loans tourban and rural women,
who are economicallydisadvantaged, excluded
from the financial system
and wish to create ordevelop incomegenerating activities.

Issuancedate
31
December
2021

Maturitydate
31
December
2025

Size

Objectives

KPIs

MAD 200
million(approx.
USD 20.4
million)The micro-credit loans
granted to the target
population aim tocontribute to thefollowing objectives:• Increase in job
creation• Promotion of
women’s
entrepreneurshipand incomegenerating activities• Number of loans granted
to women eligible formicro-credit• Number of loans granted
to women byo degree of formalityo urban and rural areao activity
o age groupo marital status• Number of women
beneficiaries of bankaccounts

37

https://coebank.org/en/news-and-publications/news/ceb-issues-new-social-inclusion-bond-bolster-itsresponse-ukraine-refugee-crisis/
38
https://coebank.org/en/news-and-publications/news/ceb-usd-1-bn-social-inclusion-bond-benchmarkbenefit-ukraine-refugees/
39
https://www.moodys.com/web/en/us/hosted-assets/spo-20210702-ve-spo-bcp-attawfiq-gender-bondenglish.pdf
40
UN-Women, 2023, Case study series: Innovative Financing for Gender Equality via Bonds, Morocco: social
bond issued by a commercial bank, https://www.unwomen.org/sites/default/files/2023-05/case-study-seriesinnovative-financing-for-gender-equality-via-bonds-morocco-en.pdf

49• Reduction of
inequalities• Providing banking to
women excluded
from the traditional
financial systems• Number of women
beneficiaries of microinsurance

The Hong Kong Mortgage Corporation Limited Social, Green and Sustainability Financing
Framework41
The Hong Kong Mortgage Corporation Limited has developed The Hong Kong Mortgage Corporation
Limited Social, Green and Sustainability Financing Framework, under which it may issue green, social
and/or sustainability bonds and other debt instruments and use the proceeds to finance projects inthe eligible categories. Eligible categories include Social Alleviation: SME, Access to Essential Services,
Affordable Housing, Access to Affordable Basic Infrastructure and Services, Renewable Energy, Clean
Transportation, Pollution Prevention and Control, Sustainable Water and Wastewater Management,
Green Buildings - Data Centres and Energy Efficiency. Sustainalytics considers that the projects fundedusing proceeds from the instruments issued under the Framework are expected to contribute to the
low-carbon transition and sustainable development. The Framework outlines a process for tracking,allocating and managing proceeds, and makes commitments for the Hong Kong Mortgage Corporation
Limited to report on the allocation and impact of the use of proceeds. Furthermore, Sustainalytics
believes that Framework is aligned with the overall sustainability strategy of the Group and that theuse of proceeds categories are expected to contribute to the advancement of SDGs 3, 4, 6, 7, 8, 9, 11
and 12. Additionally, Sustainalytics is of the opinion that The Hong Kong Mortgage Corporation Limited
has adequate measures to identify, manage and mitigate environmental and social risks commonly
associated with the eligible projects.
Use of Proceeds Category
Social Alleviation: SME

SDG
SDG target
8. Decent work and economic 8.3 Promote developmentgrowthoriented policies that support
productive activities, decent
job creation, entrepreneurship,
creativity and innovation, andencourage the formalisationand growth of micro-, smalland medium-sized enterprises,
including through access tofinancial services

9.3 Increase the access of
9. Industries, Innovation, and small-scale industrial and other
Infrastructure
enterprises, in particular indeveloping
countries,
tofinancial services, including
affordable credit, and their41

The Hong Kong Mortgage Corporation Limited Social, Green and Sustainability Financing Framework, 2022.
HKMC Social, Green and Sustainability Financing Framework Second-Party Opinion (F).pdf

50

Access to Essential Services

3. Good Health and Wellbeing

4. Quality Education

Affordable Housing

11. Sustainable
Communities

integration into value chainsand markets
3.8 Achieve universal healthcoverage, including financial
risk protection, access toquality essential healthcare
services and access to safe,
effective,
qualityandaffordable essential medicinesand vaccines for all
4.1By 2030, ensure that all girls
and boys complete free,equitable and quality primaryand secondary education
leading to relevant and Goal-4
effective learning outcomes

Citiesand 11.1 By 2030, ensure access for
all to adequate, safe andaffordable housing and basic
services and upgrade slums
Access to Affordable Basic 7. Affordable and clean energy 7.1 By 2030, ensure universal
Infrastructure and Services
access to affordable, reliable
and modern energy services

9. Industry, Innovation and 9.c Significantly increase access
Infrastructure
toinformation
andcommunications technology
and strive to provide universal
and affordable access to theInternet in least developed
countries by 2020
11. Sustainablecommunities

Renewable Energy

citiesand 11.2 By 2030, provide access tosafe, affordable, accessible andsustainable transport systems
for all, improving road safety,
notably by expanding public
transport,
withspecialattention to the needs of thoseinvulnerable
situations,
women, children, persons withdisabilities and older persons
7. Affordable and clean Energy 7.2
By2030,
increase
substantially the share of
renewable energy in the global
energy mix

51

Clean Transportation

11. Sustainable
Communities

Citiesand 11.2 By 2030, provide access tosafe, affordable, accessible andsustainable transport systems
for all, improving road safety,
notably by expanding public
transport,
withspecialattention to the needs of thoseinvulnerable
situations,
women, children, persons withdisabilities and older persons
Pollution
Prevention
and 12.
Ensuresustainable 12.5 By 2030, substantiallyControlconsumption and production reduce
waste
generation
patterns
through prevention, reduction,
recycling and reuse
Sustainable
Water
and 6. Clean Water and Sanitation
6.1 By 2030, achieve universal
Wastewater Management
and equitable access to safe
and affordable drinking water
for all 6.3 By 2030, improvewater quality by reducing
pollution, eliminating dumping
and minimizing release ofhazardous
chemicals andmaterials,
halvingtheproportionofuntreated
wastewater and substantially
increasing recycling and safe
reuse globally
Green Buildings - Data Centres 11. Sustainable Cities and 11.c Support least developed
Communities
countries, including throughfinancialandtechnical
assistance,inbuilding
sustainable
andresilientbuildings
utilizing
local
materials
Energy Efficiency
7. Affordable and clean Energy 7.3 By 2030, double the global
rate of improvement in energy
efficiency
Mexico - Banco Compartamos Social Bond Framework42
Banco Compartamos S.A. Institución de Banca Multiple (‘Banco Compartamos’) is a financial
institution, part of Gentera S. A. B. de C. V. (‘Gentera’), offering loans and credits – mainly throughgroup lending methodology – to community groups and low-income individuals, as well as bankaccounts, saving products, insurance policies, and payment services.
The Bank has developed the Banco Compartamos Social Framework, under which it intends to issue
one or more social bonds and use the proceeds to finance and/or refinance, in whole or in part, existing
and/or future lending. Additionally, the bank will expand its product offering including bank accounts,
42

Banco Compartamos Social Bond Framework, 2020.
Banco+Compartamos+Social+Bond+Framework+Second+Party+Opinion.pdf

52

payment services, transactional channels, savings products, insurance coverage and/or digital financial
solutions that advance financial inclusion for underserved and unbanked populations, as well as using
the liquidity generated by the transaction to strengthen its overall balance sheet and maintain liquidity
in the face of the current pandemic-driven macroeconomic context. The Framework defines eligibility
criteria in three areas:
1. Employment Generation – Microfinance and Entrepreneurs Financing
2. Socioeconomic Advancement and Empowerment – Programmes to support women-owned
businesses
3. Access to Essential services – Financial
Impact of Use of Proceeds
The use of proceeds categories are aligned with those recognised by the SBP. Sustainalytics has focused
below on how the impact is specifically relevant in the local context. In the context of Mexico’s
emerging market economy, MSMEs make up a vital part of the economy and overall employment.
According to OECD, 4 million SMEs in Mexico represent 12.4% of total gross production and employ
47.2% of the entire workforce. However, the lack of access to finance for MSMEs has become asignificant impediment for employment, economic development and shared prosperity in the country.
Based on statistics of the IFC, MSMEs in Mexico face a financing gap of USD 163 billion, accounting for
14% of GDP, the second-highest gap by volume among all Latin American countries. Additionally, 2018
data from the OECD shows a 5.9% interest rate spread between SMEs and larger firms as the averageinterest rates correlate with the size of the borrowing company, which further burdens MSMEs seeking
financing. The MSME financing gap leads to wide labour productivity gap. Mexico has the lowest labour
productivity of SMEs among all OECD countries. The huge productivity gap between SMEs and large
firms aggravates income inequalities and slows economic growth in Mexico.
The importance of addressing these concerns is represented in the steps the Mexican federal
government has taken in implementing specific programmes targeted to micro and small enterprises.
These include initiatives aimed at lowering the personal income tax rate, providing management
training and ICT adoption in micro-business. The Financial Inclusion Action Plan, launched in 2016, also
addresses the importance of MSME financing. Having served over 13 million people since its founding
in 1990, and by continuing to provide financial services to underserved populations, Banco
Compartamos’ social bonds are expected to create job opportunities and to help promote theeconomic development of the communities targeted. Therefore, Sustainalytics is of the view that
Banco Compartamos’ provision of loans for micro/small and rural business will have a positive impact
on job generation and improve economic growth in Mexico.
Importance of supporting women in entrepreneurship
Despite Mexico’s economic growth, women’s labour force participation rate in Mexico lags the averageof OECD countries as well as other large Latin American countries. Compared to an 80% rate of malelabour force participation, Mexican women are represented at a rate of 48% based on the National
Survey for Financial Inclusion 2018 data. Additionally, the fact that women are overrepresented in
insecure and lower-paid jobs demonstrates a broader gap in gender inequality in Mexican society.
According to the OECD, one cause of this low participation rate is the unpaid work burden on Mexican
53

women, which has created more obstacles for women to devote time to formal employment.
Moreover, based on the classification of the Mexican government to measure poverty, 14% of women
agricultural producers and MSMEs are recognised as highly marginalised communities. Mexico
launched its National Financial Inclusion Strategies in 2016, which includes the Mujeres PYME policy
aimed at supporting small businesses led by women. Along with other policies, this is expected to help
nearly 7 million women to participate in the formal financial system. Banco Compartamos is targeting
primarily female entrepreneurs with limited or no credit history. As 88% of the Bank’s clients in Mexico
are women, the use of proceeds of these social bonds allocated to female entrepreneurs will help
advance Mexico’s Financial Inclusion Strategy and empower women in leadership, promote women in
the economy and bridge the gap of inequality. Given this context, Sustainalytics recognises theimportance of supporting female-owned businesses, and it impacts on reducing gender inequality in
Mexico. The projects funded through Banco Compartamos’ social bonds are anticipated to bringpositive impacts to gender equality in Mexico.
Importance of financial inclusion and access to services in Latin American countries
In Mexico, only 44% of adults hold a bank account and more than 30% of adults have no access tofinancial services, with the percentage reaching 42.9% in rural areas. The low financial inclusion rate
has been attributed primarily to low incomes. Access to financial services should also be considered in
the context of its interrelation with access to other basic services (e.g. housing, healthcare andeducation). According to the IMF, a positive correlation has been found between the percentage offinancial inclusion, per capita income and education level. Considering the majority of people without
access to financial services belong to highly marginalised communities, without the protection
provided by banking services, they are more vulnerable during economic uncertainties. The lack offinancial access also limits the potential economic development for these groups.
As a World Bank Group partner country, committed to prioritising Universal Financial Access by 2020,
Mexico launched the National Financial Inclusion Strategy in 2016. The strategy is expected toaccelerate the access to financial services for more than half of its population. At the same time, theWorld Bank has implemented projects in Mexico to expand financial inclusion. To achieve this goal,
the IFC supported the development of Banco Compartamos’ microfinance offerings. By financing
projects that expand individual access to banking and other microinsurance products, Banco
Compartamos can promote access to underserved populations with little or no credit history toaffordable financial services and support their overall economic growth. Financial inclusion also
provides more opportunities in education, housing and health care for low-income populations,leading to overall improvements in wellbeing in the country. Therefore, Sustainalytics views Banco
Compartamos projects for access to financial services as providing positive impacts for the target
groups. The financial inclusion gaps in Latin American countries represent an opportunity for Banco
Compartamos to generate measurable impact by strengthening the access to financial services for all
people in Mexico.
Banco Compartamos has developed the Banco Compartamos Social Bond Framework under which it
will issue social bonds and use the proceeds to finance lending and advance social and economic
inclusion. Sustainalytics considers that the assets funded by the social bond proceeds will provide
positive social impact. The Banco Compartamos Social Bond Framework outlines a process by which
proceeds will be tracked, allocated, and managed, and commitments have been made for reporting54

on the allocation and impact of the use of proceeds. Furthermore, Sustainalytics believes that the
Banco Compartamos Social Bond Framework is aligned with the overall sustainability strategy of thecompany and that the social use of proceeds categories will contribute to the advancement of SDGs 5,
8 and 10. Additionally, Sustainalytics is of the opinion that Banco Compartamos has adequate
measures to identify, manage and mitigate environmental and social risks commonly associated withthe eligible projects funded by the use of proceeds.
Alignment with/contribution to SDGs
The SDGs were set in September 2015 and form an agenda for achieving sustainable development by
the year 2030. This social bond advances the following SDG goals and targets:
Use of Proceeds Category SDG Use of Proceeds Category SDG
SDG target
SDG target
Employment Generation
8. Decent work and economic
growthUse of Proceeds Category SDG
SDG target
8.3 Promote developmentoriented policies that support
productive activities, decent
job creation, entrepreneurship,
creativity and innovation, andencourage the formalizationand growth of micro-, smalland medium-sized enterprises,
including through access tofinancial services.
Socio-Economic Advancement 5. Gender Equality
5.5 Ensure women’s full andand Empowerment
effective participation andequal
opportunities
forleadership at all levels ofdecision-making in political,
economic and public life.
Access to Essential Services
8. Decent work and economic 8.10 Strengthen the capacity ofgrowthdomestic financial institutions
10. Reduced inequalities
to encourage and expand
access to banking, insurance
and financial services for all
10.2 By 2030, empower andpromote the social, economic
and political inclusion of all,irrespective of age, sex,
disability,
race,
ethnicity,
origin, religion or economic orother status.
Mexico- Fondo Especial para Financiamientos Agropecuarios (FEFA) Social Bond with a Gender
Focus Framework43
In 2020, Fondo Especial para Financiamientos Agropecuarios (FEFA) issued a social bond to financeproductive or investment projects for women (as individuals) or micro, small and medium-sized
43

Fondo Especial para Financiamientos Agropecuarios (FEFA) Social Bond with a Gender Focus Framework,
2020. ESG-Social-FEFA21G-SPO-english.pdf (fira.gob.mx)

55

enterprises (MSMEs), family businesses, large companies, associations and organisations of producers
that are led by women or have exclusive participation by women in agricultural, forestry, fisheries andrural areas. In April 2022, Fideicomisos Instituidos en Relación con la Agricultura (FIRA) engaged
Sustainalytics to review the projects funded through the issued social bond and provide an assessment
as to whether the projects met the Use of Proceeds criteria and the Reporting commitments outlinedin the FEFA Social Bond with a Gender Focus Framework.
Under its Social Bond with a Gender Focus Framework, FEFA will issue social bonds and use the net
proceeds to finance projects that promote gender equality and advance financial inclusion andsocioeconomic empowerment of women. Sustainalytics considers that the financing provided by thesocial bond proceeds will deliver positive social impact.
The Framework outlines a process by which proceeds will be tracked, allocated, and managed, andcommitments have been made for reporting on the allocation and impact of the use of proceeds.
Furthermore, Sustainalytics believes that the Framework is aligned with the overall sustainability
strategy of the institution and that the social use of proceed category will contribute to theadvancement of SDGs 1, 2, 5, 8, and 10. Additionally, Sustainalytics believes that FEFA, as one of thefour trust funds forming FIRA, has adequate measures to identify, manage and mitigate environmental
and social risks commonly associated with the eligible projects funded by the use of proceeds.
Alignment with/contribution to SDGs
SDG
1. No poverty

2. Zero hunger

5. Gender equality

8. Decent work and economic growth

SDG target
1.4 By 2030, ensure that all men and women, inparticular the poor and the vulnerable, haveequal rights to economic resources, as well as
access to basic services, ownership and control
over land and other forms of property,
inheritance, natural resources, appropriate newtechnology and financial services, including
microfinance.
2.3 By 2030, double the agricultural productivity
and incomes of small-scale food producers, inparticular women, indigenous peoples, family
farmers, pastoralists and fishers, including
through secure and equal access to land, otherproductive resources and inputs, knowledge,
financial services, markets and opportunities forvalue addition and nonfarm employment.
5.5 Ensure women’s full and effective
participation and equal opportunities forleadership at all levels of decision-making inpolitical, economic and public life.
8.5 By 2030, achieve full and productive
employment and decent work for all women andmen, including for young people and persons
with disabilities, and equal pay for work of equalvalue.

56

10. Reduced inequality

10.2 By 2030, empower and promote the social,economic and political inclusion of all,irrespective of age, sex, disability, race, ethnicity,
origin, religion or economic or other status.

57