Impact bonds are evolving and growing as investors put pressure on their financial advisors to offer more socially relevant investments, says Louise Herrle, managing director of capital markets and head of SRI business at Incapital.

The company’s Incapital Legacy Platform is a distributor and underwriter of impact bonds.

Incapital, which acts as the middleman between the issuer and financial advisors, broker-dealers and banks that offer bonds to retail clients, began offering impact bonds in 2005 with Calvert Impact Capital. It now handles bonds from the World Bank, Capital Impact Partners and International Finance Corp., the largest global development institution focused exclusively on the private sector in developing countries.

The funds from impact bonds are used for projects that have positive impacts on society or the environment. These types of projects were given a boost in 2016 when the United Nations launched the Sustainable Development Goals, which focus on ending poverty, fighting inequality and tackling climate change.

“From what we are hearing from the investment community, we are confident the demand for these bonds is going to be there in the future,” Herrle says. “Investors are going to want them, and from the non-profit side there will be a significant need.”

The $100 million in bonds offered by Capital Impact Partners, which joined the platform last autumn, help fund community projects and are “AA”-rated by S&P Global. This is the first programatic, Depository Trust Company-cleared community development financial institution offering that has earned a rating by S&P, Capital Impact says. Some $40 million in bonds were sold after the first issuance in November, and the remainder was reissued in January.

By using the Incapital Legacy Platform, advisors and broker-dealers can provide clients with access to impact bonds with a minimum investment of $1,000. In the past, such products typically were restricted to institutional investors with large investment dollars to commit, Herrle says. Impact bonds can help finance various projects ranging from community development to education and health, and address a wide variety of needs such as farmworker clinics, skilled nursing home care projects and urban housing, to name just a few things.

The desire by investors to have a positive impact on the world has been growing for years. Herrle says, “In the last four years, approximately 65 broker-dealers participated in Legacy offerings per year. In the prior four years ending in 2013, it was 38, and in the four years prior to that it was 28.”

Incapital has distributed more than $750 million in impact bonds, with $400 million of that being Calvert Impact Capital Community Investment Notes. The Calvert notes increased 30% annually over the past three years, and 2017 volume set a record high. Calvert uses the proceeds to invest in organizations in the U.S. and more than 80 countries that create affordable housing, finance small businesses, develop renewable energy solutions, and provide essential community services.

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