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Greenwashing

Greenwashing is the act of distributing false information about something being more environmentally friendly than it actually is.

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Tackling the Cost of Living Crisis

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In the first video of this two-part video series, Elisa introduces us to sustainability. She begins by looking at the difference between sustainability and corporate social responsibility, two terms that can be easily confused.

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Banking Essentials - Part I

This pathway will walk us through the basics of banks, starting with some of the different types and their main functions, then starting to look at the regulation faced by the banks, both before and after the Global Financial Crisis.

Greenwashing

Greenwashing is the act of distributing false information about something being more environmentally friendly than it actually is.

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Tackling the Cost of Living Crisis

In this video, Max discusses the cost-of-living crisis currently enveloping the UK. He examines its impact on households as well as the overall economy.

CSR and Sustainability in Financial Services

In the first video of this two-part video series, Elisa introduces us to sustainability. She begins by looking at the difference between sustainability and corporate social responsibility, two terms that can be easily confused.

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Incremental Value of Social Bonds

Incremental Value of Social Bonds

Keith Mullin

35 years: Capital markets editorial

In the last video to this series of Social Bonds, Keith discusses the concept of social additionality, the idea whereby positive outcomes accrue solely because of the issuance of social bonds, and that the true investment in the social economy is inflated due to refinancing. If only new projects were included in market volumes, the gross size of the market would reduce dramatically.

In the last video to this series of Social Bonds, Keith discusses the concept of social additionality, the idea whereby positive outcomes accrue solely because of the issuance of social bonds, and that the true investment in the social economy is inflated due to refinancing. If only new projects were included in market volumes, the gross size of the market would reduce dramatically.

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Incremental Value of Social Bonds

5 mins 19 secs

Key learning objectives:

  • Understand additionality in the context of social bonds

  • Understand how the social bond market would look if only new projects were included in market volumes

Overview:

Additionality refers to the positive outcomes of social or environmental projects that accrue solely because of the issuance of social, sustainable or green bonds; i.e. they wouldn’t have happened otherwise.

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Summary

What is additionality in the context of social bonds?

Additionality refers to the positive outcomes of social projects that accrue solely because of the issuance of social bonds i.e. they wouldn’t have happened otherwise. It defines the net positive contribution of the labelled ESG capital markets. The gross volume of social bonds doesn’t tell us much because most do not finance new projects; they refinance existing ones. A $500m social project financed with short to medium-term debt and refinanced twice can be counted as $1.5bn invested into the social economy. But two-thirds of that is merely replacing existing financing. The true investment in the social economy is $500m. Some would say a basic principle of labelled green and social bonds should be that only proceeds that are allocated to new projects should count as this is capital that is additional.

Additionality is the bridge that takes us from a general principle that financing and investing in social projects is generally a good thing to a reality where social projects are driving fundamental change in how issuers think about their businesses, business models and balance sheets at the same time as investors are driving real social impact. Closing the funding gaps that exist across the green and social sphere won’t happen through business-as-usual zero additionality refinancing.

How would the social bond market look if only new projects were included in market volumes?

  • Counting only new projects would dramatically reduce the gross size of the social bond market and would render issuance more episodic
  • True social bonds would only emerge once issuers had sufficient project portfolios to finance. On the plus side, financing a portfolio that’s already been mapped out would accelerate ramp-up periods
  • No additionality = no new proceeds allocated to the green or social economy
  • If zero additionality = business-as-usual, some would say that equals social-washing

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Keith Mullin

Keith Mullin

Keith is the founder and director of KM Capital Markets, a media and thought-leadership consultancy. He spent the past 35 years working in specialist capital markets media and has had a ring-side seat at all of the major market events. Prior to setting up KM Capital Markets in 2017, Keith worked at Thomson Reuters.

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