Columbia Threadneedle’s total AuM tied to social bond impact strategies is now at EUR 356 million – this includes UK, European and US strategies as well as a newly established global strategy in a segregated mandate.

The UK strategy just passed the five-year mark, and inflows have increased by 32 percent systematically on a month-to-month basis since beginning of the new year. The European strategy’s inflow has grown 15 percent since beginning the year.

Finding bonds to buy into is not difficult, says Simon Bond, director of responsible investments at Columbia Threadneedle:

"We are talking about the institutional bond market. It’s not a small esoteric edge of the market. Originally, we thought that about 34 percent of the UK bond market would be suitable for a social bond strategy – but as we have gone along and the markets have developed, we think it’s now about 50 percent of the overall bond market in the UK".

The majority of the bonds are investment-grade corporate bonds in the widest definition. And even though take off has been somewhat challenging for even patient sales people, things are now starting to change, says Columbia Threadneedle, which is one of the managers with the longest experience in social bonds – if not the longest experience.

"We are progressing at three times the pace that green bonds were progressing at ten years ago – so, a much faster pace but the same trajectory, really," Bond tells AMWatch.

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First mover

One investor who has been with Columbia Threadneedle’s UK social bond impact strategy from the beginning is Austrian based pensionfund, VBV - Vorsorgekasse. Mr. Günther Herndlhofer is Head of Asset Management for VBV, where they have a sharp focus on social outcome strategies since its inception in 2002.

"When we started in the UK strategy, there was no Brexit in sight, and we found the strategy was primarily fulfilling our criteria of having a social focus in our investment, and, secondly, it was a way to get some Sterling exposure. Since then, Britain has become more unattractive from a continental European point of view, and we decided to have our own global mandate," Herndlhofer says to AMWatch.

The VBV Vorsorgekasse is the largest of nine providers of this kind of mandatory vehicle for severance payments, which have to be made by every company for every employer in Austria.

VBV has a market share of approximately 33 percent. To VBV, the interesting thing about social bonds is the dual return concept.

“You have the financial return objective, but on the other hand, you also have an impact return objective. You get interest rates and cashflow, but you also get the possibility to say to your clients that their money has an impact on society. You can map it, for example, to the Social Development Goals from the UN (SDGs), which are very popular these days”, Herndlhofer explains.

“When we ask our clients about what’s important for them: they answer that decent returns, low costs and sustainable investments are the three top priorities,” says Herndlhofer.

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Brand new global mandate

The global mandate is still brand new, and so is the reporting. However, if you look at the Annual Social Impact Report launched this month on the European Social Bond impact strategy from Columbia Threadneedle, you get an idea of what is meant by “Social impact”.

The report offers explicit explanations on the impact the money invested through the strategy has had during the past year. Some of the social high lights include “Financing approximately 812,000 social homes, supporting 85 housing associations and allocating EUR 1.1 bn to advanced nutrition and global health priorities,” the report states.

Columbia Threadneedle and VBV both say that giving up on returns is not an issue.

"Since the inception of provident funds in Austria our sustainable investment strategy has achieved the highest accumulated returns. Off course there are years when others are better than us, but in the long run, the sustainable investment approach of VBV is superior to the market," says Herndlhofer.

Columbia Threadneedle’s data on the UK strategy, compared to an investment grade benchmark, indicates that returns are not that different.

"We absolutely reject the idea that you should sacrifice financial return, and that’s the beauty of this technology – you face the same balance sheet, the same credit risk, the same default probability," says Bond.