Nigeria’s Securities and Exchange Commission (SEC) has proposed a new rule on “Social Bond”.
The SEC new Rule on Social Bond focuses on eligible projects, conditions for approval, utilization and management of proceeds, reporting, refinancing, external review, etc.
Social Bond is a type of debt instrument, where the proceeds would be exclusively applied to finance or refinance new and/or existing eligible projects with clear and identifiable social objective(s) and which are dedicated to an identified population.
While justifying the need for rules on Social Bond, SEC said “The volume of social bonds issued in 2020 has increased eight times from a year ago, as interest in ethical investment rises and more governments and agencies see them as a key funding tool for specific projects.”
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“Issuance of social bonds has surged to $85 billion this year so far, compared with $10.6 billion in the same period of 2019. The popularity of Social Bonds has increased as the COVID-19 crisis has led investors to place more emphasis on the “social” component of environmental, social and governance-driven (ESG) investing.
“Governments, people and business have suffered serious financial crunch as a result of the COVID-19 Pandemic. In Nigeria, funding of social projects was affected as resources were diverted to unexpected areas of expenditure which ordinarily could have been financed by issuance of social bonds”, SEC stated.
To qualify as a social bond, SEC wants the monies to be invested in providing and/or promoting one or more of the following social projects: affordable basic infrastructure (example clean drinking water, sewers, sanitation, transport, energy, etc); and access to basic services (example health.
The Commission also wants the Social Bond monies to be invested in education and vocational training, healthcare, etc); affordable housing; job creation including through the potential effect of small and medium-sized enterprises financing and microfinance; food security, socioeconomic advancement and empowerment, any other social project as may be approved by the Commission from time to time.
“The projects must be dedicated to one or more of the following identified target populations: People living below the poverty line, excluded and/or marginalised populations and/or communities, vulnerable groups, People with disabilities, migrants and/or displaced persons, undereducated population, and underserved population, due to lack of access to essential goods and services.
Also among others, SEC stated the conditions for approval of a social bond.
“In addition to the general registration requirements for debt issuances as stated in the Rules and Regulations of the Commission, an issuer of a Social Bond shall file: A letter committing to invest all the proceeds of the bond in projects that qualify as social project(s) or assets in line with this rule; a feasibility Report stating clearly, the measurable benefits of the proposed Social project or Assets.
The issuer shall also file a prospectus which shall disclose the social objectives, project selection criteria, decision-making procedures, social and environmental benefits, risks associated with the projects, use and management of the proceeds; an independent assessment or certification issued by a professional certification authority approved or recognized by the Commission; and any other documents as may be required by the Commission from time to time, SEC proposes.
