NN Investment Partners (NN IP) announces the launch of the NN (L) Social Bond fund, which aims to achieve positive social impact alongside an attractive financial return. This launch comes at a time in which companies, governments and government-related entities are increasingly issuing social bonds to finance projects that contribute to society with a neutral or positive impact on the environment. Proceeds in the fund are used for predefined projects with clear social benefits to a specific target population.
Investors are increasingly looking to align their portfolios with both their financial objectives as well as internationally recognised sustainability goals such as the UN Sustainable Development Goals (SDGs). At the same time, the focus of impact investors is shifting from making environmental impact to social impact. Investing in social bonds can deliver a positive contribution to ten of the SDGs that are relevant in addressing the world’s most pressing social goals. These SDGs range from poverty eduction, hunger, and gender inequality to boosting high-quality education and work. This new fund complements NN IP’s existing range of impact bond funds and applies a similar disciplined investment process as NN IP’s flagship green bond strategies.
Although green bonds have a longer track record as an asset class, social bonds are one of the fastest growing segments of sustainable investments. They offer opportunities to build a well-diversified portfolio and can replace part of a traditional fixed income allocation without any additional credit risk and also share the same characteristics with their more traditional counterparts in terms of issuer exposure, rating, yield, and duration.
Bram Bos, Lead Portfolio Manager Green, Social and Impact bonds, NN Investment Partners: “We are delighted to maintain our momentum in impact investing whilst simultaneously playing a role in financing initiatives that will aid social development. Social bond issuance picked up in 2020 and 2021, especially in financing social projects that focus on dealing with the long-term effects of the pandemic. During this time, the social bond market caught up with other impact bonds and now has a capitalization of more than EUR 400 billion, offering investment opportunities for a well-diversified social bond portfolio. In 2022, we expect an issuance of EUR 250 billion. Our outlook for growth opportunities is positive and we are looking forward to tapping into the social bond market and working towards a better future.”
The fund primarily invests in global social bonds and money market instruments of high quality (AAA to BBB-) denominated in Euro, but can also include sustainability bonds that allocate at least half of the proceeds to social projects. Specifically, the fund is focused on investments in social bonds and sustainability bonds that allocate proceeds of social projects that promote affordable basic infrastructure such as water and sanitation, access to essential services in education and health, affordable housing, employment, food security, and socioeconomic advancement and empowerment.
Roel van Broekhuizen, Portfolio Manager Green, Social and Impact bonds, NN Investment Partners adds: “Only bonds that finance projects aligned with the Social Bond Principles will be selected, but we look beyond the standard labelling. All investments will be subject to a detailed issuer-level ESG screening and a rigorous social bond assessment which covers the use of proceeds, project evaluation, management of proceeds, and the reporting of the estimated social impact. Furthermore, we actively engage with issuers on a continuous basis in order to prevent social washing, and we leverage our experience in the green bond market to do this effectively. This ensures investors can be confident that only bonds matching our strict criteria will be included in the portfolio.”