Social Bonds

Table of Contents

1. Frontmatter

2. Chapter 1. Introduction

   Cristina Rovera

   Abstract

   I can imagine the question: What made an economics professor decide to write this book? To address a new topic? A niche market? To talk about impossible dreams and utopias? Obviously, there is the interest in the subject, which—being new—has yet to be touched upon in much detail. But there is more to it than that. The Ethics and Finance course—which I teach at the School of Management and Economics at the University of Turin—has seeped into my soul. The study of ethical issues has taken an increasing hold of me. Unfortunately, the society we live in overwhelms us with sad news, which only teaches us about man’s wickedness, selfishness and greed. You get to the point where you just can’t watch the news anymore.

3. Chapter 2. Social Needs: The Raison D’être of the Third Sector

   Cristina Rovera

   Abstract

   Social finance has developed considerably in recent years—in different countries and with different goals. To tackle the subject, we need to introduce some information about the third sector, the sector directly involved in the management of social purposes.

4. Chapter 3. The Features of “Social” Bonds

   Cristina Rovera

   Abstract

   On average, 80% of the third sector’s funding sources come from the public sector, which unfortunately is often in deficit. This is true everywhere. The risk of default of the United States in 2023 can be used as an example.

5. Chapter 4. Social Issues: Aid from Finance

   Cristina Rovera

   Abstract

   A clear and comprehensive consideration of social bonds must go beyond theoretical definitions. The illustration of the most representative real cases enables a better understanding of the instrument and its usefulness. The examples analysed here cover the most varied fields, ranging from public safety to housing, from family support to education, from health to employment. What we would like to offer is a new classification of the instrument, not based on geographic location, the structure of the operation or the designation of the issuer or performance but on the social sphere of competence.

6. Chapter 5. The Social Market

   Cristina Rovera

   Abstract

   Is a social bond advantageous? How many and what are the disadvantages of the investment? What are the returns likely to be? How risky is it? Is it rated? Where can you buy it? These are the questions that any potential investor might ask, but they could also be asked by an issuer wondering whether or not this is the right instrument to use. All this can be answered by discussing the secondary market. We are going to start with a general historical overview (Galitopoulou and Noya 2016; Gustafsson-Wright 2020); and then explore the pros and cons—including return and risk; and conclude with an analysis of the latest data, downloaded from Euronext and reprocessed using the Refinitiv database.

7. Chapter 6. The Italian Case

   Cristina Rovera

   Abstract

   But are social bonds in use in Italy too? According to Arena et al. (2016), the rate of adoption of “Social Impact Bonds (SIB) is still modest. The mismatch between widespread interest and actual adoption raises interesting questions as to whether we are still in the early adoption phase of SIBs and massive diffusion is yet to come, or we are observing a marginal phenomenon”. Michelucci (2016) makes the same consideration, observing: “This paper aims to study the characteristics of the Social Impact Investment (SII) market in the absence of its enablers. Since the first SII convention in 2007, SII practices have spread particularly in English speaking countries, which are often referred to as the pioneers in this field. In these countries, SII markets are small but quite advanced in comparison with the rest of the world, and some outstanding cases, such as the launch of the first social impact bond or the establishment of impact funds, have been taken as a reference model worldwide.” After this premise, the author takes a look at the Italian scenario, as do Corvo and Pastore (2019) in their article entitled “The challenge of Social Impact Bond: the state of the art of the Italian context”. Questioning the spread of social bonds in Italy therefore makes sense, although the national market is still in its infancy compared to other international scenarios. Let us begin with an overview of the legislation on the third sector, before continuing with market data on the propensity to donate and concluding with an illustration of the most interesting cases of social bonds issued in Italy.

8. Chapter 7. Conclusions

   Cristina Rovera

   Abstract

   We have seen that there are social investment vehicles in which the goal pursued goes beyond mere profit. Perhaps it is because I believe in them; perhaps it is because my role as a professor obliges me to educate young people, but I have faith that something good can emerge from all this—even if it is only a limited reality at the moment. It looks like a promising new route to direct private savings towards new paths. It facilitates the flow of savings towards social purposes without aggravating public finances. It is my intention to spread the word. If investors know that they can invest their earnings “well”—in helping rather than destroying—perhaps we can hope to build a better world. And when I talk about destruction, I don’t just mean military destruction; I’m not just thinking about weapons but anything that can ruin the world, both in human and environmental terms. These bonds can be used to diversify the financial portfolio but also as an alternative to charity. If the initiative is a success, the investor benefits twice: via the return and also the knowledge that they have contributed to a good cause. And even if the initiative fails, you still have the knowledge that you attempted to do something worthwhile, in which you truly believed. As Mother Teresa of Kolkata said: “what we are doing is just a drop in the ocean. But if that drop was not in the ocean, I think the ocean would be less because of that missing drop”.