Social bonds in the European Union: Performance and determinants in the context of Socially Responsible Investment

Abstract

In recent years, the European Union (EU) has become the main market for GSS+ bonds (green, social, sustainable, and sustainability-linked). Among them, social bonds have established themselves as a fundamental instrument for financing projects aimed at achieving the Sustainable Development Goals (SDGs), as well as other support programs such as those launched following the 2020 health crisis. In the EU, the development of a Social Taxonomy is still pending, with the aim of facilitating the flow of funds toward socially sustainable activities, while also avoiding the risks related to social washing. This paper, which aims to contribute to the scarce academic literature on social bonds, analyzes issuances carried out in the EU between 2017 and 2024, in order to determine the existence of a social premium in the secondary market, as well as its determining factors. Among the findings of this research, it is noteworthy that, for certain issuers, social bonds exhibit lower yields than conventional bonds. Among the determinants of these differences, the positive influence of the issuer’s credit rating stands out, although the sustainability score penalizes them. The results have implications for regulators, issuers, investors, and also for organizations that are part of the Social Economy, given the importance of financing for the latter.