Coronavirus Bonds May Help Social Debt Emerge From Green Shadow

April 3, 2020, 10:01 AM

A rush to sell at least $10 billion in bonds in response to the coronavirus crisis is shaking up the green-heavy ESG debt market.

Issuance of social and sustainable bonds has jumped as borrowers including the European Investment Bank and World Bank raise funds to help governments and companies weather the consequences of the global pandemic. Their efforts have also stoked a wider push to make it easier to measure the results of social bonds -- something that can seem more nebulous than for environment-focused green bonds.

“The present crisis is going to power the concept of sustainability and social bonds,” said Aldo Romani, head sustainability funding at EIB’s capital markets. It also shows the need to map the impact of social bonds “based on criteria the capital markets can understand and support,” he said.

EIB reports on individual projects funded by its sustainability bonds, such as the number of people helped, and Romani said that there is need for “quick progress” on the European Union’s sustainability bond taxonomy to help boost transparency across the market. Global development banks have sold social bonds -- used to fund projects with positive social outcomes -- to support billions of Covid-19 response pledges including beefed-up medical provisions or loans to companies forced to close their doors.

“Now that we have a pandemic, it is a very concrete issue that social bonds can help address,” said Farnam Bidgoli, head of sustainable bonds at HSBC Holdings Plc. More deals may follow from Europe, Canada, the U.S. and potentially emerging markets, she said.

HSBC worked on a 1 billion-euro social bond sale by Council of Europe Development Bank on Thursday, which was more than four times over-subscribed. EIB’s similar-sized deal the same day was seven times bid. African Development Bank and Inter-American Development Bank have sold dollar coronavirus bonds.

Green Giant

Even with the rush of deals, the social and sustainability bond market is dwarfed by the green market, which is more established and used by companies and governments in additional to development banks. Global first-quarter sales of the two note types totaled about $20 billion, less than half the size of the green bond issuance, according to data compiled by Bloomberg.

Still, greater transparency has boosted the appeal of social bonds to investor seeking to make impact in addition to a financial return, according to HSBC’s Bidgoli.

“Our syndicate team has seen stronger demand for social and sustainability bonds than for conventional bonds” she said. “There is appetite out there.”

To contact the reporter on this story:
Lyubov Pronina in Brussels at lpronina@bloomberg.net

To contact the editors responsible for this story:
Hannah Benjamin at hbenjamin1@bloomberg.net

Neil Denslow, Charles Penty

© 2020 Bloomberg L.P. All rights reserved. Used with permission.

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