Market MovesDecember 22, 2019

Japan, European Development Bank Launch Social Bond Initiative

Partnership will promote and develop bonds that focus on ESG.

Reported by Michael Katz

Japan’s $1.48 trillion Government Pension Investment Fund (GPIF) and the Council of Europe Development Bank (CEB) have launched a partnership to promote and develop sustainable capital markets. Their focus will be on social bonds, and the incorporation of ESG assessments in fixed-income investments.

“GPIF requires all asset managers to integrate ESG into their investment analysis and decision-making,” Hiro Mizuno, CIO of GPIF, said in a statement. “We regard the purchase of green, social and sustainability bonds as one of the direct methods of ESG integration in the fixed income investment.”

The CEB’s social bonds are issued in alignment with the “social bond principles” that are administered by the International Capital Market Association (ICMA), a Switzerland-based not-for-profit membership association with more than 580 members in 62 countries. According to the ICMA, social bonds are the use of proceeds bonds that raise funds for new and existing projects with positive social outcomes.

The social bond principles “promote integrity in the social bond market through guidelines that recommend transparency, disclosure and reporting,” says the ICMA. “They are intended for use by market participants and are designed to drive the provision of information needed to increase capital allocation to social projects.”

The CEB launched its first social inclusion bond in 2017 and has since issued a total of €1.5 billion ($1.67 billion) of such bonds. The proceeds of the bonds are earmarked to finance projects considered to have a high social added value in social housing, education, and job creation and preservation in micro, small, and medium-sized enterprises, throughout Europe.

The CEB said its first social inclusion bond helped preserve nearly 113,000 jobs, while creating almost 1,300 new jobs, and helped make available close to 2,300 homes to low-income persons through construction or renovation projects. The bank also said that in education and vocational training, more than 57,000 students in 212 institutions benefited from the funds.

Launched in 2018, the bank’s second social inclusion bond, helped preserve more than 65,000 jobs and create 6,000 new ones, while making 2,600 homes available to low-income people. It also benefitted about 24,000 students in 31 institutions through education and vocational training.

“We are privileged to partner with GPIF,” CEB CFO Jacques Mirante-Péré said in a statement. “Their leadership on ESG-focused investments lends important support to the type of high-social-impact projects that the CEB finances throughout Europe.”

GPIF has approximately $32.4 billion in assets under management tracking ESG indices, and in September reported that four out five ESG indices selected by the fund outperformed their parent indices and market averages over the past two years. The ESG indices selected by the GPIF are composed mainly of medium and large-cap stocks and include the MSCI Japan ESG Select Leaders Index, the MSCI Japan Empowering Women Index, and the FTSE Blossom Japan Index.