Social bonds – building COVID-19 relief into debt funding programmes

14 min read

For further information, please visit the White & Case Coronavirus Resource Center.

Since their introduction in 2017, social bonds issuances have increased in popularity as an alternative or additional sustainable option to the green bond market. Social bonds allow issuers to raise funds that provide support for projects furthering the UN's Sustainable Development Goals, as well as providing support for specific socially-invaluable causes. Currently, such support can be directed at projects aimed at relieving some of the social impacts of the COVID-19 pandemic. In light of this pandemic, bond issuers may wish to build the option to issue social bonds into their debt funding documentation to enable them to fund projects to respond to the COVID-19 crisis.


Market guidelines and drivers

Social characteristics

  • There is currently no legal definition of a "social bond", and there is arguably considerably less clarity on what constitutes a social bond than a green bond, especially as the EU progresses towards finalising its Sustainability Taxonomy and Green Bond Standard. However, one internationally accepted criteria that sets out key characteristics of what makes a bond "social", as opposed to a conventional bond, is the Social Bond Principles ("SBP").1 The SBP were, as with the Green Bond Principles, developed by the International Capital Markets Association ("ICMA") in 2017, and periodically updated, in order to strengthen the integrity of the social bond market, which focuses on financing socially beneficial projects for specified target populations. 
  • The SBP are voluntary market guidelines that set out transparency, reporting and disclosure recommendations. Disclosure of "social" use of proceeds is the cornerstone of a social bond, however the SBP do not have prescriptive formula for it. The "Use of Proceeds" section of a typical social bond prospectus2 is flexible enough to describe the project(s) the issuer desires to use the proceeds for while enabling investors to assess whether the level of "social use" is compatible with their investment objectives and needs.

The benefits of being social

  • Whether an issuer opts to use the SBP as the basis of its social bond issuances or builds a more bespoke framework, its first foray into the social bond market is likely to be under its existing debt funding documentation, in particular in the case of frequent issuers.
  • The reference throughout, for convenience, is to MTN Programmes but this discussion applies equally to GMTNs, SEC Shelf Registrations, private debt programmes, domestic debt programmes and similar debt financing structures.
  • There are a number of advantages to building social bond capability into a MTN programme as has been done by many issuers for green bonds. From the issuer's perspective, a social bond can result in the diversification of its investor pool (e.g. greater numbers of asset managers and insurance or pension funds, regional shift of investor groups, more socially dedicated investment funds), and contributes to "social" investor relations and corporate social responsibility initiatives. For investors, social bonds provide much needed supply to the market on the buy side, as many investors are increasingly required to invest in social and sustainable products in order to meet their social and sustainability guidelines or criteria in their investment strategies. Hence, social bonds are considered as an asset class of its own. In addition, as with green bonds, issuers of social bonds that have a demonstrably positive effect on their respective cause will increase their credibility as a socially-responsible and sustainable entity that may be more attractive to investors generally as a result. Issuers should note, however, that in the absence of clear metrics it can be more difficult to measure the success of a social bond as compared to a green bond. In the latter case, success can often be demonstrably measured, for example in the quantity of greenhouse gas saved.3

SDG alignment

  • Sustainability is now a mainstream issue for all capital market participants, as alignment with aspects of the Paris Agreement of 2015 is increasingly becoming a regulatory requirement and there is increasing pressure for companies and financial institutions alike to demonstrate their contribution towards the UN's Sustainable Development Goals ("SDGs").4 The scope of what could be considered a "social" use of proceeds can inherently cover a much greater number of the SDGs than green bonds can, so social bonds may prove to be a key method of connecting institutional capital with commercially viable social projects that are less well served by other methods of finance.

COVID-19 relief

  • The wide-ranging and immediate impacts of the COVID-19 pandemic (and the emergency containment measures being implemented in response to it) are being felt across the world. COVID-19 is testing the social fabric of societies and the cooperation among nations. Chiefly and most directly, the virus is placing severe strains on countries' healthcare systems, as well as having a significant impact on economies and the financial stability of many economies, the nature of which is unprecedented in modern history. However it is also directly or indirectly impacting other systems and areas of everyday life such as education, employment and welfare systems, which are compounded in countries that are less able to manage the additional strain such disruptions have on their economies. As a result, any bond proceeds used to alleviate the impacts of COVID-19 and the related necessary emergency measures are likely to comply with the SBP. It is then just a case of having the verification and reporting procedures in place to be able to label and market the issuance as an SBP-compliant social bond.
  • COVID-19 relief financing will be needed not only during the initial phase of the pandemic, but also in its aftermath as businesses and societies recover from the necessary policy measures put in place to limit its spread. This could take some time and the sums required will be considerable. Governments and multi-lateral organisations across the world are incrementally putting in place a variety of stimulus or relief packages to ease the socio-economic burden of the virus, such as debt relief measures proposed by the IMF, World Bank and G-20, the Bank of England's Corporate Finance Facility, the ECB's Pandemic Emergency Purchase Programme and European Stability Mechanism, the CARES Act in the USA and China's incentivisation and fast-tracking of COVID-19-relief bonds. However, private sector finance will also have an essential part to play to plug the gaps that remain. A key means of delivering this private finance could be through social bonds.
  • A number of IFIs and development banks in particular have been quick off the mark with issuing significant volumes of social bonds5, which have proven popular among investors despite the volatile market conditions. However, much more issuance is needed from both financial institutions (supranational IFIs and otherwise) and corporate issuers to connect institutional capital and international capital markets funding with the projects and initiatives needed to turn the tide on the outbreak and rebuild in the aftermath. While social bonds can be issued as standalone instruments, many issuers may find it more economically viable and expedient to build the optionality for issuing a social bond into their existing debt funding programmes.6


The practicalities – building social terms into programme documentation

  • As a practical matter an issuer will designate a "social" use of proceeds in the MTN base prospectus or other disclosure documentation and then provide summarised information about: (i) the "social" (eligible) projects it expects to finance, (ii) any reporting obligations it may have and (iii) the provision of second party opinions (if any). These rather simple amendments and others outlined below are the key changes that can be made to existing MTN programme documentation in order to build in optionality for issuers to issue social bonds.

Key "social" terms

  • The SBP provide recommendations on process and disclosure that issuers, investors, underwriters, placement agents, rating agencies and other market participants may use to understand the characteristics of a particular social bond. The key sections in a MTN base prospectus or similar disclosure document are:
    • the "Use of Proceeds" section;
    • the "Risk Factors" section; and
    • the applicable "Final Terms" or "Pricing Supplement".
  • When updating an existing MTN base prospectus, the following few changes could enable issuers to raise funds for new and existing projects with social benefits through social bonds. Alternatively, issuers could include some of these in a supplemental or drawdown prospectus to issue social bonds without completing a programme update:
  • Use of Proceeds is universally included in social bond documentation and remains the single most consistent identifier for a social bond. An issuer wishing to issue social bonds using its existing MTN programme documentation could include wording similar to the following in the "Use of Proceeds" section of its MTN base prospectus:
    • The net proceeds from each issue of Notes will be used by the issuer for general corporate purposes, unless otherwise specified in the applicable Final Terms [or, in the case of Exempt Notes, the applicable Pricing Supplement].
    • In particular, if so specified in the applicable Final Terms [or, in the case of Exempt Notes, the applicable Pricing Supplement,] the Issuer will apply the net proceeds from an offer of Notes specifically for socially-beneficial purposes ("Social Projects").7
  • "Social" Risk Factors may be included in a MTN base prospectus in order to describe the specific "social" risks which come along with an investment in social bonds. Such risks need to be set out at base prospectus level and cannot be added in the relevant Final Terms. If such risk factors are not included in a current MTN base prospectus they can be introduced by way of supplement to the relevant base prospectus. If the prospectus needs to comply with the Prospectus Regulation8, risk factors will be categorised according to type of risk and listed in order of materiality. An issuer would therefore have to consider the specific risks related to issuing a social bond in comparison to more general risks about its business and the environment in which it operates and categorise them accordingly.
  • Final Terms or Pricing Supplement: issuers can include the following in "Part B" of their Final Terms or Pricing Supplements to facilitate social bond issues:

Reasons for the offer


Reasons for the offer:

[●] / [Not Applicable]
(See "Use of Proceeds" wording in the Prospectus – if reasons for the offer are different from general corporate purposes, include those reasons here, including if the Issuer intends to apply the net proceeds for Social Projects.)


  • This allows the Issuer to outline details of the specific eligible project or structure that the proceeds of the social bond issuance will be used for in the applicable Final Terms or Pricing Supplement. Although many stock exchanges accept such amendments to the form of Final Terms and/or Pricing Supplement, some may not. In these cases, we would work together with the listing venue team to find alternative solutions that work for that particular exchange and still allow the issuer to incorporate relevant use of proceeds disclosure in the base prospectus.
  • Other potential amendments: issuers can include further features in the MTN base prospectus such as including details of the process for project evaluation and selection, management of proceeds and reporting in relation to the proceeds of any social bond issuances, and appropriate disclaimers. These are not mandatory but may help raise interest from social investors with more stringent investment criteria.

Key "social" terms – contractual documents

Undertaking or representation on use of proceeds

  • "Social" provisions are not typically included in contractual documents, and so the failure to comply with the terms will not create a default or contractual breach of the terms of the bonds (although the inclusion of an undertaking regarding use of proceeds in the Dealer and/or Subscription Agreement is likely to be requested by managers).
  • However, while there may not be a direct contractual consequence to bondholders for non-compliance, the use of proceeds and related disclosure will have been included in the base prospectus related to the offering and investors will invest on the basis of the information in that document (and may have a claim for misrepresentation or similar under securities legislation if any statements of intention surrounding the use of proceeds and related turned out to be untrue or misleading).
  • Issuers should therefore be aware of the potential ramifications, both legally and from an investor engagement perspective related to future market access if it does not use the proceeds as stated or its intention to do so is not put in to effect.  The specific liability that may arise in such circumstances is beyond the scope of this client alert, but issuers should carefully consider the consequences of such an undertaking or representation and the extent to which it may create an obligation of liability for ongoing monitoring or enforcement before deciding to issue a social bond.

"Social" undertakings

  • To-date, issuers are reluctant to include "social" undertakings, as a breach may trigger an event of default under bond documentation, which could result in cross-defaults of other financing agreements. However, in social project bonds there has been a willingness to include such undertakings. Whilst there does not currently appear to be much demand from investors to move toward an undertaking–style approach in either social bonds or green bonds, this may evolve in a changing environment resulting in increased regulation and as the size of the market grows. Similarly, as issuers become more used to complying with environmental and related covenants and obligations in loan financings, it is inevitable that this will start to cross over in to bond financing and may, in the future, be mandated by regulatory or policy changes.

Prospectus liability

  • As highlighted above, in many jurisdictions, prospectus liability (either criminal or civil) may be imposed if there is a material inaccuracy in, or omission of information from, the prospectus, which may cause investors to suffer loss as a result. If the issuer discloses in the "Use of Proceeds" section, for example, that it would use the proceeds of the issuance for certain eligible projects, and subsequently does not do so, in some jurisdictions prospectus liability may arise. The same may apply if the disclosure in the prospectus sets out a mechanism to credit the proceeds of the social bond into a specific sub-account or otherwise track them by a formal internal process, if such processes are not subsequently complied with.

First steps for prospective issuers

  • The first step a prospective social bond issuer must take is to consider and identify what aspects of its business model or financial obligations, present or future, would be eligible for social bond financing. Initiatives relating to the promotion of healthcare, education, gender equality, employment, affordable housing, poverty relief and access to financial services would all be strong candidates for social bond financing, which could also encompass many projects relating to relieving the effects of the COVID-19 pandemic and the emergency containment measures implemented in relation thereto. 
  • The next step is formalising the proposals in a ‘Social Bond Framework', setting out the methodology for selecting which projects will be financed via a social bond, and ring-fencing the proceeds of a bond so they can be applied only to eligible social projects. Once this Social Bond Framework is in place, the process of legally integrating the framework and mechanics for issuing a social bond into an issuer's existing debt financing instruments is relatively straightforward.

Our sustainable finance practice

Our sustainable finance knowledge and experience covers a range of industries, issuers, dealers/managers and financial intermediaries, investors, structures and financial service providers. White & Case is also a contributing Observer Member of the ICMA Green Bond Principles Working Group, a member of the ICMA GBP SBP Executive Committee Advisory Council, a select member of the Green Finance Initiative Partnership lead by HM Treasury, the Department of Energy and Climate Change and the City of London, Knowledge Partner to the Bank of England and People's Bank of China as co-chairs of the G20 Sustainable Finance Study Group, a member of the ICMA green bonds underwriter legal risk mitigation working group, the chair of UK Green Finance Initiative (UK GFI) Green Islamic Finance Working Group and CBI Partners and members of the Climate Bonds Initiative Legal Roundtable.


Find out more about business response to the Coronavirus outbreak:
Coronavirus: Managing business impact and legal risks


2 Prospectus is used as a general term to represent offering memorandum and other debt securities offering documentation and the terms can be used interchangeably in this regard.
3 ICMA has published a framework for impact reporting for social bonds which may enable issuers to effectively relay the relative success of their social projects – available at
5 See some recent social bonds issued by development banks here:
6 A Q&A for COVID-19-related social bond issuers is available at
7 This is a generic example only, specific terms may vary.
8 Regulation (EU) 2017/1129


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