There is little doubt that socially responsible investment is making strides in Asia.
This month, Singapore-based Impact Investment Exchange (IIX) sold the first social sustainability bond to be listed on a stock exchange. The four year notes raised just $8m, but it was an important stepping stone for the market.
The proceeds from the Women’s Livelihood Bond, which carries a 5.65% coupon, will directly benefit women in Cambodia, the Philippines and Vietnam through impact enterprises and microfinance institutions. The projects are intended to give women access to credit, market links, vocational training and affordable goods.
The notes come with a loan guarantee from the US Agency for International Development (USAID) in partnership with Australia’s Department of Foreign Affairs and Trade (DFAT), and stakeholders include the Rockefeller Foundation, the Clinton Global Initiative and the Japan Research Institute. About 60% of the bond’s investors were Asian, with the majority being high-net-worth investors.
Other countries have dipped their toes in the SRI waters. Malaysia saw potential in the space in 2014 when the country’s Securities Commission extended Islamic bond legislation to include an SRI framework. In June 2015, Malaysia’s Khazanah Nasional sold the first ringgit-denominated SRI sukuk, with funds used by non-profit company Yayasan AMIR to improve access to education.
SRI is attracting a growing number of Western institutional investors with portions of their portfolios directly allocated to have a social impact. Large pensions and insurance funds increasingly want to be known to have ethical values. For example, California State Teachers’ Retirement System, the second-largest public pension fund in the US, with assets topping $208bn, has internal task forces dedicated to investing in sustainability. Last July the fund committed $2.5bn to low carbon investing in developed and emerging markets.
Wealth management surveys have been showing an active growth in interest in the area from all ages, but particularly from young investors. Morgan Stanley wrote in March that 86% of millennials are interested in socially responsible investing. The age group is also twice as likely to invest in a stock or fund if social responsibility is part of the investment thesis. This will transform the capital markets as millennials grow older, presuming their priorities do not dramatically shift.
Perhaps the best thing about SRI bonds is that they will provide a good way for borrowers to combine the benefits of international aid and international capital. Reluctance to invest in emerging and frontier markets is often tied to issues with transparency and questions about local laws. But by using credit wraps from agencies such as USAID, and clearly defining projects ahead of time, borrowers can overcome many of these doubts.
The public listing of the Women’s Livelihood Bond is a tremendous step in developing the SRI market for Asia. The bond is doubtless a good public relations activity for those involved at this point, but it should also pave the way for future issuance and investment opportunities.