ESG investors focus on additionality as banks eye social bonds
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ESG investors focus on additionality as banks eye social bonds

ESG investors want to see evidence that their money is making a difference. It could be putting a dampener on banks’ appetite for issuing social bonds.

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When NatWest came to market with its second social bond on February 23, it received a warm welcome from investors.

The €1 billion deal – the first from a British banking group designed to fund affordable housing loans – attracted more than €4 billion of orders from buyers in the UK and Europe, and priced inside the yield curve for NatWest’s conventional bonds.

The group has been a pioneer of social bonds in the UK, issuing its first deal – a €750 million bond from Royal Bank of Scotland targeting SME lending in deprived areas – in November 2019.

At the time, sustainable bond markets were almost exclusively focused on green deals. Since the start of the Covid crisis, however, the social market has taken off as supranationals, governments and other public sector borrowers rushed to raise funds to mitigate the impact of the pandemic.

“That prompted investors to revisit their mandates to see if they could expand beyond green, which has resulted in a big increase in demand for social bonds,” says Scott Forrest, head of treasury debt capital markets at NatWest Treasury Markets.

“We had a number of new funds coming into our deal.

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