An examination of social impact bonds issued by affordable housing authorities

In the past decade, socially impactful investing has risen in popularity as both governments and corporations begin to integrate environmental, social, & governance (ESG) principles into their financial projects. This paper will first examine the rise of social investing and how this trend has impacted affordable housing authorities in the United States. Next, it will examine the risk premium on social impact bonds issued by affordable housing authorities to determine whether the bonds are viewed as riskier than conventional housing bonds. I hypothesize that the social bonds will offer a higher risk premium to compensate for the higher uncertainty associated with social bonds. The data analysis revealed that a social versus conventional label has no significant impact on the risk premium of municipal bonds issued by affordable housing authorities. This indicates that investors do not view the social bonds as riskier than conventional bonds and authorities may be motivated to apply the ‘social' label to simply attract a larger pool of investors. The results of this paper aim to expand the current lack of research on the comparison of social bonds and conventional bonds issued by affordable housing authorities.