Abstract
Abstract The article focuses on corporate social bonds, which are commonly defined as debt securities whose proceeds are used to finance projects or ventures at favourable conditions, in order to achieve positive social outcomes or to address specific social issues. Social bonds belong to the family of sustainable finance currently developing on international financial markets, especially in the European Union, and where a recent interest has also emerged at the political level. Although in March 2018 the European Commission published its Action Plan on Financing Sustainable Growth, at the moment of writing there is no specific EU legal framework for social bonds. The absence of a precise definition of social bonds and the uncertainty around the remedies for non-compliance of promised ‘social’ obligations entail serious risks of ‘socialwashing’ (i.e., the misappropriation of an increasingly attractive label).Through an analysis of the contractual design of social bonds, and the identification of different types of social bonds, the article identifies potential legal ‘Achilles heels’ of social bonds and suggests possible contractual remedies to ensure that both issuers and beneficiaries comply with their duties in terms of social impact achievement. Finally, the article suggests a European Union intervention in developing a ‘goal-oriented’ definition for social bonds.
Highlights
Social bonds belong to the family of sustainable finance currently developing on international financial markets, especially in the European Union, and where a recent interest has emerged at the political level
The European Commission considers private finance as a necessary driver towards more sustainable growth since, to this end, “the scale of the investment challenge is beyond the capacity of the public sector alone”;4 and it is strongly engaged in promoting sustainable finance
In 2016, the Commission set up the High-Level Expert Group on Sustainable Finance (HLEG) and its 2018 report triggered the commitment by the Commission to “accelerat[e] the shift to sustainable finance”
Summary
The European Legal Framework for Sustainable Finance and the International Market of Socially Responsible Investments Expressions such as ‘sustainable finance’ or ‘socially responsible investment’ (SRI) usually refer to investors financing projects and ventures in order to generate a positive impact for society and/or the environment. The international financial market has seen the steady growth of ‘socially responsible investing’, better known as ‘SRI’ This expression refers to investors that integrate social and environmental considerations mains the fact that the figures are largely self-reported and Eurosif does not have the capacity to verify all of these figures”; see 2018 Eurosif Report, supra fn. There are six main SRI strategies for investment selection known in market practices:[8] (i) sustainability-themed investments (assets related to sustainability funds); (ii) best-in-class investment selection (where investors choose companies with the highest ESG or other criteria-related scores in a specific industry);[9] (iii) the exclusion of holdings from a specific investment universe (based on the exclusion of specific business sectors such as weapons, or countries that regularly violate human rights);[10] (iv) norms-based screening (where beneficiaries are selected on the basis of human-rights fulfilment or the adoption of certain guidelines such as the UN Global Compact);[11] (v) ESG factors’ integration in financial analysis; and (vi) engagement and voting on sustainability issues
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