Countries and corporations are tapping a growing corner of the $100 trillion global bond market with designated ‘social’ and ‘sustainability’ bonds.
The global pandemic has pushed such bonds into the role that in recent years has been played by green bonds, which raised $258 billion last year. Both are safe and well-understood instruments from high-quality issuers that come with the added sheen of equity and social progress. Indeed, as issuances of social bonds have soared in the past month, green bonds have stalled. With central banks running out of options and government relief funds quickly tapping out, such bonds may be a way for private capital to play a larger role in financing the COVID response and recovery. Even before COVID, social bonds were increasing in prominence as a growing number of issuers have been linking strategies to the U.N. Sustainable Development Goals. “Sustainability bonds,” which allow issuers to allocate to both environmental and social projects grew three-fold in 2019 to $65 billion. Social-only bonds grew 40% last year to $20 billion. Both categories were dwarfed by green bonds, which reached a record $258 billion in 2019. Issuers have “focused mainly on issuing green bonds over the past years, but given the current pandemic, we expect to see a steep increase in social and sustainability bonds in the coming months,” said Julie Becker of the Luxembourg Stock Exchange, which last week waived fees for COVID-19 response bonds. Social bonds are distinct from “social impact bonds,” which only repay investors if outcomes targets are hit. Sir Ronald Cohen is proposing a “pay-for-success” bond, to the tune of $10 billion, to purchase COVID tests at a pre-agreed rate.