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Time to build a Swedish social financial infrastructure worthy of the name  Realtid.se

Time to build a Swedish social financial infrastructure worthy of the name Realtid.se

The financial sector is now shifting its commitment towards a socially sustainable transformation of our Western economies. Kommuninvest, which collects loans in the international capital market on behalf of Swedish municipalities, is in the starting blocks of issuing its first multi-billion social bond. We should follow Kommuninvest and build a Swedish social financial infrastructure worthy of the name.

Swedish mutual and private pension funds, AP funds, and bank savings funds are the dominant investors in the Swedish bond market. Capital is already doing a very good job by investing in green bonds. Our institutional investors have also started investing in social bonds issued by the World Bank to deal with problems in developing countries, as well as in European Covid bonds aimed at employment and health promotion measures.

“As a researcher, I have followed the growth of the Swedish social financial market for several years. Unfortunately, I have to say that Sweden is behind many of the OECD countries. At the same time, we need to take into account that there will be different players to break this down. Development “.

However, there is still a shortage in the Swedish capital market for loans linked to social goals. This international financial market consists of sustainability bonds that have green and social goals as well as pure social bonds, social credits, credit guarantees, and social outcome contracts but also regular bank loans linked to social obligations. Financial instruments that also promise social benefits are part of the market for so-called impact investments, where the goal is to achieve a sustainable return at the same time and positively contribute to social or green change.

As a researcher, I have followed the emergence of the Swedish social financial market for several years. Unfortunately, I have to say that Sweden is behind many of the OECD countries. At the same time, we need to bear in mind that there is a great will on the part of various actors to break this development.

“The Swedish banking system has so far only offered green loans, at the same time that foreign banks have developed loan products linked to social sustainability.”

The real estate industry, with its central position as a societal builder, is at the fore in linking socially measurable indicators to its operations. The main themes are security, employment, exclusion, health and well-being, goals also embraced by Goal 11 of the Global Sustainability Goals, Sustainable Cities and Communities. Many real estate companies participate in platforms for cooperation between the business sector, the public sector and civil society. Samhällsbyggnadsbolaget issued the first Swedish social real estate bond in 2020, albeit in euros. But there is a great deal of frustration in the industry. Social bonds relate to billions of dollars in amounts and a large portion of real estate companies that work with social sustainability today borrow smaller amounts directly from banks. The Swedish banking system has so far only offered green loans, at the same time that foreign banks have developed loan products linked to social sustainability.

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For a few years now, various financial instruments have been tested in Sweden to fund safeguard measures, which municipalities often do not consider themselves able to afford. An important component is that future earnings, often in the form of savings, are computed at present value to enable financial transfer between different departments and fiscal years. Many municipalities and regions have established their own social investment funds. Some have also used social outcome contracts that operate in a similar fashion, except that the funder is a private player. Contracts are tested by the Stockholm region with Skandia and SEB, and in Norrköping with Leksell Social Ventures. The results for both financial instruments have so far been mixed. The overall conclusion is that the state needs to participate as a funder and legislator to facilitate the redistribution of revenue for both SIF and outcome contracts.

“But now the government’s money is lost and the ambition is unclear. The private initiatives are left to themselves and the state-subsidized fetuses for social lending and counseling are not being taken care of.”

The business community and investors are working actively to integrate the United Nations’ 17 Sustainable Development Goals into their business operations. The development is supported by international accounting standards such as the Global Reporting Initiative, the GRI, the European Union’s work with sustainability reporting and the European Union’s requirements for corporate reporting on sustainability in supply chains. However, it requires a change of attitudes among stakeholders and the allocation of resources to preventive measures, development of evidence-based method, social and economic cost-benefit calculations and impact measurement in order to be able to demonstrate social benefit. Therefore, the financial market, along with the public sector, needs to demand knowledge about evidence-based approaches to social issues, standardized methods of measuring impact and validation by an independent third party.

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The government invested SEK 150 million in developing the market for social enterprises in the years 2018-2020. The funds contributed to several initiatives to develop knowledge about change action and measure the effectiveness of preventive social initiatives. But now government money is lost and ambition is unclear. The private initiatives are left to themselves and the state subsidized fetuses for social lending and counseling are not taken care of.

Kommuninvest’s loan offer has been developed to 292 municipalities and territories with SEB and Danske Bank. For a start, loans in excess of SEK 500 million have been granted to four municipalities. It is described as a “game changer”. Loans are only granted for investments that include social measures that reach a vulnerable target group and can document work. In this way, Kommuninvest contributes to creating a culture of measuring impact in the public sector and developing cooperation between different departments, with civil society and companies.

“I think it is vitally important that the state, banks, and investment institutions turn their backs on Kommuninvest by developing more social financial tools.”

I think it is vitally important that the state, banks, and investment institutions turn their backs on Kommuninvest by developing more social financial tools. Inspiration can be taken abroad. In France, Canada, Finland, Denmark, and the United Kingdom, there are examples of many different social financial instruments as well as supportive legislation and advice. Governments as well as financial actors from different actors participate.

The State Social Investment Fund case is already being pursued by Swedish municipalities and regions SKR and RISE. Our institutional investors should take their share of this. They need to outpace each other and work together on the emergence of a financial market with social goals. Then we can talk proudly about Sweden’s ambitions for the Global Goals and Agenda 2030. It should be clear to measure and assess a company’s social footprint such as the environmental one.

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Sophie Nashamson Ekual
Senior Social Finance Consultant Ramboll Management Consulting
Ph.D., Researcher at Stockholm School of Economics, Sustainability Research Center