Access to essential services and infrastructure continues to pose a significant challenge for a large segment of the global population. Social finance plays a pivotal role in addressing these entrenched societal issues, providing investors with an avenue to enact meaningful change.
The World Bank reports that a staggering 1.7 billion adults worldwide lack access to financial services, while approximately half of the global population lacks adequate sanitation services and one in three people do not have access to safe drinking water. This lack of access also extends to crucial services such as health, education, housing, electricity, and telecommunications, perpetuating widespread poverty.
Nearly 700 million individuals, or one in 10 people globally, live in extreme poverty with limited access to vital resources such as food, education, water, and sanitation. Regrettably, these challenges are further exacerbated by the enduring impact of the COVID-19 pandemic and continual international geopolitical tensions in our increasingly interconnected world.
In light of these striking statistics, there is an urgent need for coordinated actions to pave the way for progress and well-being. The financial sector has taken proactive steps by implementing “social finance” initiatives. These initiatives mobilize public and private capital to address critical social challenges through impactful investments. The rise of “social finance” is driven by the growing demand from investors to identify opportunities that deliver economic returns while addressing the “triple P”: people, planet, and purpose.
A significant financial product contributing to these efforts is social bonds. These debt instruments are used to finance essential infrastructure projects, such as water and sanitation, low- and mid-income housing, and sustainable transportation, along with access to crucial services like health, education, and food security. Social bonds also support business financing for small- and medium-sized enterprises (SMEs), which are vital for job creation in many economies but often struggle to access affordable sources of finance.
What distinguishes social bonds from traditional debt issuances is their requirement to target social impact causes as well as providing investment returns to investors. This is reinforced by bond issuers’ public commitment to allocate funds towards specific social sectors, with annual reports provided to investors detailing the utilization of the funds.
An exemplary instance of this commitment is Citi’s issuance of its first social finance bond in 2021, raising $1 billion to fund transactions focusing on essential sectors in emerging market countries. This bond was oversubscribed, indicating strong interest from institutional investors. Citi has set a target of raising $1 trillion for sustainability assets by 2030 in alignment with the UN Sustainable Development Goals. Within this commitment, the bank aims to expand access to essential services for 15 million households, including 10 million women, within the initial years.
The journey towards Citi’s first social finance bond began in 2005 with the establishment of Citi Social Finance, a dedicated specialist business unit. This unit collaborates with various product areas to develop solutions that increase access to financial inclusion, basic services, drive job creation, and fund social infrastructure projects in the over 50 emerging markets where Citi operates. The team’s efforts have been pivotal in facilitating access to international markets and increasing the flow of public and private capital towards social development projects and enterprises.
The significance of collaboration cannot be understated, especially as the financial industry continues to contribute to social and environmental transformation more deliberately. The power of partnership between stakeholders, including philanthropy, public, and private sectors, will define success in building a more equitable world for all.
The commitment to social finance has enabled Citi to mobilize approximately $3 billion in 2022 to finance clients focused on high social impact. Funded projects have had a positive impact on 7.75 million people, with 65% of them being women. These initiatives have channeled approximately $8.9 billion in capital to underserved sectors. Collaboration with different stakeholders, such as the risk-sharing program with the US Development Finance Corporation and the Ford Foundation, has also allowed Citi to deploy local currency capital to companies not served by traditional banks.
As we navigate ongoing challenges, it is clear that financial institutions are central to driving social and environmental progress. These efforts have reinforced the understanding that only through collective action can we achieve our social and environmental goals.
In essence, social finance offers a compelling opportunity to address critical societal challenges while delivering sustainable and impactful returns. Through concerted and coordinated efforts, we have the potential to make tangible and lasting changes that benefit communities worldwide.
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