NN IP Bets on Social Bonds

    Stockholm (NordSIP) – 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. Investing in these bonds can positively contribute to at least ten of the UN Sustainable Development Goals (SDGs), addressing the world’s most pressing social goals, ranging from poverty reduction, hunger, and gender inequality to boosting high-quality education and work.

    Acknowledging this trend, on 18 July, NN Investment Partners (NN IP) announced the launch of the NN (L) Social Bond fund, which aims to achieve positive social impact by financing predefined projects with clear social benefits. The new fund complements NN IP’s existing range of impact bond funds, and the managers vow to apply a disciplined investment process similar to the rest of their flagship green bond strategies.

    The fund will primarily invest in global social bonds, and money market instruments of high quality (AAA to BBB-) denominated in Euro. The investment universe will, however, include even sustainability bonds that allocate at least half of the proceeds to social projects. The managers will focus 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.

    “Only bonds that finance projects aligned with the Social Bond Principles will be selected, but we look beyond the standard labelling,” explains Roel van Broekhuizen, Portfolio Manager Green, Social and Impact Bonds at NN IP. “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,” he adds.

    Social bonds, somewhat younger than the more well-established green 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 as they share the same characteristics with their more traditional counterparts in terms of issuer exposure, rating, yield, and duration.

    “We are delighted to maintain our momentum in impact investing whilst simultaneously playing a role in financing initiatives that will aid social development,” comments Bram Bos, Lead Portfolio Manager Green, Social and Impact Bonds, at NN IP. “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,” concludes Bos.

    Image courtesy of NN Investment Partners
    Julia Axelsson, CAIA
    Julia Axelsson, CAIA
    Julia has accumulated experience in asset management for more than 20 years in Stockholm and Beijing, in portfolio management, asset allocation, fund selection and risk management. In December 2020, she completed a program in Sustainability Studies at the University of Linköping. Julia speaks Mandarin, Bulgarian, Hindi, Russian, Swedish, Urdu and English. She holds a Master in Indology from Sofia University and has completed studies in Economics at both Stockholm University and Stockholm School of Economics.

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