A new study shows that social bond issuance reached a record high and more than quadrupled this year as conscious investors combine profit and purpose to tackle the growing inequality caused by coronavirus.
According to S & P Global Ratings, “the recent increase in social bond issuance indicates that the COVID-19 pandemic did not divert the attention of issuers or investors from sustainable financing – rather, interest seems to be growing.”
Social bonds are a form of debt that allows investors to raise funds for projects with positive social results, which in some cases provide a return on investment. These include projects to improve food security and access to education, as well as health and finance.
S & P expects that due to rising global unemployment, rising mortality, and tense healthcare systems, social bonds will be the fastest growing segment of the sustainable debt market in 2020, even though credit conditions are loosening.
According to S & P, it contrasts sharply with the rest of the global fixed-income market, where output is expected to decline by 9% this year.
“Undoubtedly, most of this rapid growth can be attributed to the effect of the COVID-19 pandemic, which accelerated the issuance of social bonds to finance both public and private responses and create positive social results, especially for target groups of the population,” the company said. . ,
Who cares about victories?
Although social bonds make up only a small fraction of the global multi-billion dollar debt market, their popularity is growing in the midst of a pandemic.
Morgan Stanley says that in April 2020 alone, $ 32 billion was issued for social bonds and bonds for sustainable development. It marked the first month in which the issuance of social bonds and sustainability exceeded the level of green bonds, the total issue of which last year amounted to $ 257 billion.
In 2019, a record debt of $ 400 billion was issued. The Climate Bonds Initiative (CBI) states that social bonds amounted to approximately $ 20 billion, or about 5%.
Source: Climate Bond Initiative, S & P Global Ratings
Key initiatives are already underway
This year, countries such as Ecuador and Guatemala issued sovereign social bonds aimed at financing the response to COVID-19. In Guatemala, the funds received are used to finance improvements to the health infrastructure and food safety initiatives, to support enterprises and specialists, as well as preventive medical and medical practice, S & P.
The African Development Bank also launched Fight COVID-19 social bond in the amount of $ 3 billion, becoming the largest dollar-denominated social bond transaction in the world.
In June, the US Ford Foundation announced the issuance of social bonds in the amount of $ 1 billion. The United States, making it the first nonprofit fund to offer a social bond marked on the US corporate bond market.
“As the crisis develops, we believe that a series of supranational, government, and corporate issues related to COVID will follow,” added S & P.
Source: Environmental Financing, S & P Global Ratings.
S&P says that measuring the impact and return on investment in social bonds remains a challenge, given the limited transparency and standardized reporting in the developing sector.
“This problem is compounded by the fact that the benefits are often better than quantitative,” said Lori Shapiro, one of S & P’s principal credit analysts.
“Improving transparency and reporting practices will ultimately help reduce some of the risks of social bonds, including social washing, and strengthen investor confidence in the asset class as it grows, which will ultimately lead to further issuance.”