Best of both worlds: How social ABS delivers low-cost financing and a positive impact

The article was first published on The Asset.

Social securitisation is developing into an important technique that enables an economy’s strongest actors to help those in need of support.

A lot of the work in capital markets and finance is about finding innovative ways to put something to better use. It might be a single asset, or a whole portfolio. There is also usually a need to keep at least two parties happy – lender and borrower, or issuer and investor.

The development in recent decades of a market for bonds that have an environmental, social and governance (ESG) overlay to them has added another factor. Today, companies and investors often find themselves having to consider this new aspect – the broader social benefit or cost of their activities. 

But sometimes these requirements come together to produce true win-win situations that meet traditional financial requirements and some of modern society’s demands. And one exciting example of this is social asset-backed securitisation (ABS).

Use-of-proceeds model

In a social ABS transaction, an issuer packages the income streams from a portfolio of assets into bonds that are sold to investors in deals that also serve some social function. One emerging asset class is the application of this technique to credit card loans. 

At Societe Generale, we have been a pioneer of Korean credit card social ABS transactions, dating back to a deal for Shinhan Card in 2021¹. Our most recent deal was a USD 400 million issue of social ABS for Woori Card in December 2024², in which Societe Generale was the sole arranger, swap provider and senior note holder.

Transactions like these are quite different to an ESG financing backing a renewable asset or project that is itself ESG-related. Social ABS deals are based on a use-of-proceeds model, where the underlying assets may not be ESG-related themselves but where the issuer commits to allocate the proceeds of the transaction to socially beneficial purposes.

This makes such deals a very clear way for a company to demonstrate its desire to make a positive impact on society. They are driven strongly by corporate culture and values. They can be aspirational for peers. They can also contribute to a general raising of awareness of ESG – especially when the company is a very well-known name.

The importance of trust

It is vital that everyone – customers, investors, advisers – can trust that social ABS deals have robust ESG frameworks governing them. Social deals must be able to demonstrate not only that the use of the proceeds has a beneficial social objective, but also that the issuer of the bonds has well thought-out social policies.

These frameworks and policies need to be independently verified and assessed, and independent companies like Sustainalytics do exactly that. Issuers of social deals must also regularly report back to investors on how their proceeds are meeting the social objectives.

In the case of Woori Card, the proceeds will be used to support some of the social objectives of the company’s ESG framework, including to help weaker economic actors, such as small and medium-sized enterprises (SMEs). One specific use is to advance the payment settlement period for these SMEs, by effectively providing a factoring service, buying bills and receivables from SMEs and settling them within one day.

Long payment terms are one of the biggest challenges for small businesses. Any measure that can shorten their working capital cycle is therefore a huge benefit. And these mom-and-pop companies are often the bedrock of society: in Korea, for example, SMEs make up 99.9% of all companies and employ more than 80% of the total South Korean workforce³.

The strong to help those in need of support via social ABS

For issuers, there is a clear benefit in being seen to be contributing to positive social impacts. But such deals can also offer attractive funding too – leading to a ‘best of both worlds’ outcome. 

After all, an ABS deal is an example of collateralised secured financing – in the case of a credit card transaction, the bonds that investors buy are backed by the cashflows from a portfolio of credit cards. If those cards are held by high quality borrowers, then the issuer of the social ABS can expect a cheaper cost of funding compared to traditional, unsecured bonds.

This ability to bring together high-quality underlying assets and a social impact objective is one of the most exciting aspects of social securitisation. 

To me, this is finance at its best. Just as the basic function of banks is maturity transformation – turning short-term deposits into long-term loans – a social ABS can illustrate another kind of transformation, where the activity of high-quality borrowers can be deployed to help enterprises that are most in need of support.

Deals like Woori Card’s demonstrate the role that securitisation can play in engaging the global capital markets for the benefit of society. This ‘best of both worlds’ technique is an ideal way for companies to achieve their social objectives while also funding themselves – and at a competitive cost, too.
 

<sub>1. Social Securitisation: a new tool for issuers to deliver a positive impact to communities - Societe Generale Asia Pacific
2. https://www.linkedin.com/posts/societegenerale-corporate-and-investment-banking_congratulations-to-woori-card-for-its-largest-activity-7273162304144175105-muGu
3. https://www.mss.go.kr/site/eng/02/20204000000002019110624.jsp</sub>