SEC Proposes New Rules on Social Bonds

The Securities and Exchange Commission (SEC) on the 7th of June 2021 released its exposure rules on Social Bonds.

SEC noted that Social Bonds have increased in popularity across the world, especially as the COVID-19 crisis has led investors to place more emphasis on the social component of environmental, social and governance-driven (ESG) investing.

In Nigeria, as a result of the financial crunch occasioned by the pandemic, funding of social projects has been affected as resources were diverted to unexpected areas of expenditure which creates an avenue for the issuance of Social Bonds.

Overview of the Proposed Rules

What is a Social Bond? The exposure rules define a Social Bond as 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.

What are Social Projects? These are projects developed directly to address or mitigate a specific social issue and seeking to achieve positive social outcomes.

What are Eligible Projects?

For any money or instrument to qualify as a social bond, it must be invested towards any of the following social projects:

  1. Affordable basic infrastructure (e.g. clean drinking water, sewers, sanitation, transport, energy, etc.)
  2. Access to basic services (e.g. health, education and vocational training, healthcare, etc.)
  3. Affordable housing
  4. Job creation including through the potential effect of small and medium-sized enterprises financing and microfinance.
  5. Food security
  6. Socioeconomic advancement and empowerment
  7. Any other social project as may be approved by the Commission from time to time.

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