Social Bonus – What is it, definition and concept | 2022

The social bond is a discount established in Spain, government funded, for electricity service. The goal is to protect households with the lowest purchasing power.

In other words, the social bonus is a reduction in electricity rates that is applied to families with lower incomes. Its objective is to provide economic support to households considered vulnerable.

This benefit applies to those who have contracted the PVPC regulated rate (Voluntary Price for Small Consumers). Through this system, the contracted power does not exceed 10KW. In addition, there are time bands, so the price of electricity varies depending on these sections.

The highest prices are paid in the hours with the greatest demand (peak hours), and the prices fall in the so-called off-peak hours, with less demand.

Characteristics of the social bond

Among the characteristics of the social bond, we can highlight the following:

  • To access a social bond, you must prove that you do not exceed a certain level of annual income. In addition, it also depends on the existence or not of members in the family who are economically dependent (particularly minor children). That is, if there is a dependent minor, the annual income established to be considered vulnerable is higher.
  • We can understand it in the following way: If there is more than one dependent person in the household, more income will be needed to support the family. So let’s assume that the threshold below which a person is considered vulnerable is if their monthly income is less than 1,000 euros. Therefore, if there was a dependent minor, that threshold would have to be higher, perhaps €1,500, for example.
  • It is applicable to people who receive the minimum pension. This, either due to retirement or permanent disability.
  • An extension of the social bonus was made to favor groups particularly affected by the coronavirus. Thus, unemployed people and people affected by a Temporary Employment Regulation File (ERTE) may request it.
  • Entrepreneurs who have seen their working hours reduced due to care or other similar situations that imply a significant reduction in their income may also apply for the social bonus.
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*Our articles are timeless, but we consider it important to mention the measures taken in the context of the coronavirus to show how the social bonus works.

Social bonus in the financial market

Another meaning of social bonus is the one that could have in the financial market. That is, that debt instrument whose objective is to partially or totally finance investments or projects from which positive social results are expected.

In other words, social bonds are bonds that are issued to raise resources that will be used for certain initiatives of a social nature. These can be, for example, affordable housing, food security or access to basic services, among others.

According to ICMA (International Capital Markets Association), social bonds must meet the following requirements:

  • All designated eligible projects must provide clear social benefits, which will be assessed and, where feasible, quantified by the issuer.
  • The issuer must clearly communicate three points:
    • The objectives of the project.
    • The process by which the issuer determines how the projects become eligible as social.
    • Supplementary information regarding processes by which the issuer identifies and manages the social benefits and environmental risks linked to the relevant projects.
  • A high level of transparency is encouraged in the processes. It is recommended to use an external auditor or unrelated third party to monitor the use of funds.
  • Reports on the use of proceeds should be produced and kept readily available and up-to-date. These reports will be renewed annually.

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