Green, Social & Impact Bonds
Green Bonds
The low-carbon transition is transforming the global economy. This complex decarbonization drive will take time and investment, especially in high-emitting sectors such as construction, heavy industry and transport. To finance this transition, governments and companies are increasingly turning to the green bond market to raise funds for environmentally beneficial projects and activities in areas such as renewable energy, green infrastructure and energy efficiency.
Once a niche product, green bonds have entered the fixed income mainstream. Market expansion and the widening range of investment funds offering exposure to green bonds have made them a viable complement to existing fixed income allocations. The financial characteristics of green bonds such as structure, risk and return are similar to those of traditional bonds from the same issuer. The main difference is that the goal for green bonds is to finance only projects or activities with a specific environmental purpose.
Our flagship green bond fund was launched in 2016. In the years since, our offerings have expanded to a suite of green bond funds along with the market. Our strategy gives investors more options as they consider adding green bonds to their fixed income portfolios.
Social Bonds
As the transformation of the global economy gathers pace, investors increasingly recognize that the goal of sustainable growth is unattainable unless it leads to a more inclusive, equitable society. With inflationary pressures and sluggish economic growth disproportionately affecting lower-income communities, projects and activities with positive social impact are gaining more attention and investment.
Until recently, fixed income investors looking for opportunities created by the drive toward inclusive growth had few compelling options. Thanks to the rapid rise of social bonds, they now have a viable alternative to conventional bonds that allows them to channel capital into socially beneficial projects such as expanding affordable healthcare and reducing income inequality. The Goldman Sachs Social Bond fund was launched in June 2022, broadening our sustainable fixed income offering.
The financial characteristics of social bonds such as structure, risk and return are similar to those of conventional bonds. The main difference is that the legal documentation of social bonds spells out how their proceeds will be used, with the goal of financing only projects with clear social benefits. Most social bonds are also intended to make a positive impact on a specific population, such as the unemployed, undereducated and people living below the poverty line.
Impact Bonds
Impact investments are made with the intention to generate measurable social and environmental benefits alongside a financial return. The Goldman Sachs Global Impact Corporate Bond fund seeks to achieve these goals by investing in green, social and sustainability bonds issued by companies around the world. The legal documentation for sustainability bonds spells out how proceeds will be used, just as it does for green and social bonds. The difference is that sustainability bonds are used to finance a combination of environmental and social projects.
The inclusion of sustainability bonds expands the investable universe for this fund. One reason some companies choose to issue sustainability rather than social bonds has to do with the size of their asset pool. When a company seeks to finance a relatively small number of eligible social projects, it may elect to combine its green and social projects to create a benchmark-size issuance capable of attracting broad investor interest.
Issuance of sustainability bonds began to take off in 2018 with the International Capital Market Association’s publication of the Sustainability Bond Guidelines, which set out best practices for issuers. The guidelines define sustainability bonds and specify their alignment with the core components of ICMA’s guides for issuers of green and social bonds.
Source: Goldman Sachs Asset Management. Dedicated green, social, and impact bonds Assets Under Supervision (AUS) as of June 30, 2024. AUS includes assets under management and other client assets for which Goldman Sachs does not have full discretion.
