Swedish Asset Owners Embrace Social Bonds

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    Stockholm (NordSIP) – The Swedish International Development Agency (SIDA) and responsAbility, a Zurich-based impact asset manager, announced they were partnering with Danske Bank to launch a US$177.5 million social bond in support of the Sustainable Development Goals (SDG). Alecta and Afa Försakring participated in this transaction.

    A Targetted Guaranteed Social Bond

    The social bond bundles loans to innovative companies in capital-scarce regions which operate in the financial inclusion, healthcare and WASH (water, sanitation, hygiene) sectors, and that have a measurable, positive social impact. Specifically, the social bond targets SDG 1 (No Poverty), SDG 2 (Zero Hunger), SDG 3 (Good Health and Well-Being), SDG 6 (Clean Water and Sanitation) and SDG 7 (Affordable and Clean Energy).

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    The initiative addresses the increased urgency to act that has been made plain for all to see by the COVID-19. “Consumers and investors are contributing to Agenda 2030 by demanding more sustainable production, transparency and reporting on sustainability issues in their corporate governance, or through direct investments in green bonds or sustainability bonds,” Kalle Hellman, Deputy Head of Unit for Guarantees and Catalytic Financing for Development at SIDA, says. “So, the Swedish Government has tasked SIDA to mobilize private capital for development. So by issuing a guarantee against the risk of loan defaults, the risk for investors is reduced, thereby reducing the uncertainty for them to invest in new markets and environments,” Hellman adds.

    The newly launched Social Bond follows a US$175 million securitization of microfinance loans successfully completed in 2019. The social bond leverages the strengths of the three partners. The Swedish government through SIDA reduces risks for investors by providing a partial guarantee for the portfolio. responsAbility, uses its impact investment expertise to select borrowers, negotiate the loans, disburse the funds, and manage the risks over the life of the bond. According to responsAbility, “concretely for this bond, USD 1 of state-guaranteed funds has mobilized USD 4 of private investment.” Finally, Danske Bank is in charge of placing the bonds with investors.

    Partnering With Credible Partners

    The interest-bearing bond is aimed at institutional investors, such as pension funds. “Alecta’s, and other large investors’ investments in social bonds have increased during the last couple of years. As long as we find good structures with credible partners such as responsAbility, we will continue to invest in products that give a stable return and enable solutions to pressing societal challenges. The problem, from our point of view, is that there is a lack of suitable products to invest in, not a lack in capital or will,” says Julian Jonsson, Portfolio Manager at Alecta, one of the bond investors.

    “Social investments like these, particularly in the area of health, resonate well with our purpose as an organization.  We are pleased to return to working with responsAbility on these important issues and are looking forward to following up on the impact that this financing provides,” Linus Thand, Portfolio Manager at Afa Försakring, adds
    “Think of responsAbility as engineers who design and build the bridge between global investors and impactful companies in emerging markets,”  Martin Heimes, Co-Head of Financial Inclusion Debt at the Swiss impact asset manager. “We’ve been pioneers on the ground for nearly two decades, building networks that translate into impressive sourcing capacity for investment opportunities and ultimately, impact and financial returns.”

    “For the Danske Bank Team,” says Patrik Hökfelt, who headed this project, it has been a privilege to work on this project, merging responsAbility as one of the world leaders in Impact Investing with SIDA, to create the bond Financing for Healthier Lives – a sound financial investment with an attractive risk-adjusted return. USD 177.5 million is dedicated to making life better for people in the developing world. The commitment from responsAbility and SIDA, as well as the investors Afa Insurance and Alecta, has been amazing and everyone has been working relentlessly to make this transaction happen,” Hökfelt concludes.

    Image by Bright Mokome from Pixabay
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