What drives the Social Bond Premium? Evidence from certification and use of proceeds analysis

The study investigates the Social Bond Premium (S-Premium), defined as the difference in Asset Swap Spreads (ASS) between Social Bonds (SBs) and comparable conventional bonds. Using a dataset of 163 SBs, the research employs Pooled OLS regressions with clustered standard errors to examine the determinants of the S-Premium. The findings show that ICMA Certifications and Second Party Opinions (SPOs) are associated with a more pronounced S-Premium, indicating that external validation enhances investor confidence. Additionally, the Use of Proceeds (UoP) categories influence the S-Premium, with bonds financing clearly defined social projects exhibiting stronger pricing effects. This study highlights how certifications, issuer characteristics, and the specificity of funded projects shape investor perceptions in the Social Bond market, contributing to the broader understanding of the motivation that drives the subscription of such instruments.