Samantha Arpas, Sustainable Finance Analyst at SEB, shares findings from a survey she conducted to understand why social investments are so much less than environmental ones.

In recent reflections on sustainable development, I have been holding on to the imbalance that undermines societal efforts for a just transition: the disparity between the allocation of capital in environmental investments in comparison to social investments. Despite the United Nations Sustainable Development Goals communicating the chain reaction of change in one area affecting another, the consequences of rapid actions for decarbonisation have left action in the resulted social implications trailing behind. to achieve social impact and financial return in the areas of affordable basic infrastructure, access to essential services, affordable housing, employment generation, food security, and socioeconomic advancement and empowerment. The overall aim is to improve people’s quality of life and well-being, while at the same time creating wider positive implications for society overall. Data from Environmental Finance’s Sustainable Bonds Insight 2024 show that social bonds are 18 percent of global sustainable bond issuance by value, while green bonds dominate at 59 percent¹. Therefore, I came to ask myself why the volumes of social investments are so much less and what can be done?

I decided that it was necessary to uncover the underlying reasons behind the disparity of products and investments towards social. To do this, I designed and distributed a survey amongst various institutional investors across Europe, with the aim to understand the most common factors influencing investment decisions and the barriers they face towards making social investments.

The responses of the survey revealed unexpected findings in relation to barriers. Investors had named a lack of opportunity, unclear sustainability characteristics of investment, and difficulties in measuring social impact as leading barriers to making social investments, with unclear mandates being the least of the barriers. The key factors, in decision making strategies, however, were as I expected including risk assessment, financial returns, and alignment with organisation values.

To understand if the unclear sustainability characteristics were related to knowledge of social sustainability, I further asked investors if they acknowledge the socio-ecological connection of a social investment. The responses showed that investors agree, exemplifying that they are aware that social investments are part of the bigger picture of sustainable development. In addition, I asked investors to self-identify their expertise in social sustainability investments, to which investors agreed that they were knowledgeable about the topic. Therefore, the unclear characteristics of sustainability as a barrier to investment allowed me to realise that it is not necessarily the knowledge of social sustainability that can contribute to this barrier, but the communication of social investments which are not as clear as they are made out to be, contributing to the hesitation of investing in social.

This excites me as it offers an opportunity to include more tools to identify the sustainability aspects of an investment, justifying the case for more than just an SDG label, such as system dynamic mapping to improve the communication and clarification of sustainability characteristics in an investment by illustrating the wider benefits socially and ecologically. Mapping the social investment’s positive contribution would allow for identification of the interconnectivity and importance of social investments for society and overall sustainable development. Simultaneously, this provides the opportunity to increase knowledge of social sustainability for all.

It is my hope that the clarification of sustainability characteristics in the investment will also reduce investors perception of lack of opportunity which will stimulate the social investment market to grow. However, at the same time the social investment market suffers from a lack of standardisation in terms of social finance definition and most importantly through lack of standardised measurement or guidance on how to approach the quantification of a social impact. Despite this, the outlook for some sort of standardisation is quite positive given the emergence of more social sustainability reporting guidance for impact reporting for social bonds which identifies social indicators in terms of outputs, outcomes, and impacts². 

Overall, I think that the outlook for allocating capital into social investments is quite positive. In my survey I asked investors the following statement, “In the future, I expect my organisation to be more willing to make social sustainability investments”, to which the majority of respondents answered in agreement- a promising outlook. Therefore, once the alleviation of the experienced barriers can be made, we can look forward to more progress towards a just transition.

Source:
¹ Sustainable Bonds Insight 2024: Environmental Finance (environmental-finance.com)
² Harmonised framework for impact reporting for social bonds - June 2023 (pdf) (icmagroup.org)