Financing the COVID-19 response
The rapid spread of the pandemic and subsequent lockdown measures around the world have placed immense strain on public health systems and economies.
Over US$151.5bn of COVID-19 bonds have been issued in the first five months of the year by governments, multilateral organisations, banks and companies, according to BNP Paribas research. Raised funds are earmarked for financing the fight against the virus, helping government finances stretched by their pandemic responses, assisting troubled businesses and supporting efforts to rebuild damaged economies.
Landmark sustainable bond issuance
Sustainable debt issues of note include the African Development Bank’s issuing of the largest US-dollar denominated social bond in international capital markets. Additionally, the bank said that the “Fight COVID-19” bond, with the $3bn of proceeds, is designed to finance equitable access to healthcare services and build contingencies to cushion the impact on the livelihoods and economies in Africa.
The lending arm of the World Bank has issued large bonds, across currencies, to help provide immediate-response health programmes in countries that have been most overwhelmed by the rapid spread of the virus. Bank of America sold the debut corporate coronavirus bond to finance those on the pandemic front line. The proceeds are being directed to fund not-for-profit hospitals treating infected patients, businesses that make or supply equipment to protect against the virus and companies that are creating diagnostic tests or vaccines to halt the pandemic.
These issues, among many others, represent a 69% increase in sustainability-focused fixed income issuance compared to the first three months of last year and is the beginning of what may be a growing trend, according to Moody’s Investor Service, which expects an emphasis on social finance to be one of the lasting outcomes of the pandemic.
Transparency is key in a crisis
Sustainable bonds offer a transparent way to directly finance the coronavirus response. A number of institutions published frameworks and key indicators to measure the positive social impact of the bonds issued are expected to have.
The European Investment Bank, for example, announced that it will report back to investors, on the individual projects that their sustainability bonds are financing, with key indicators including how many people and businesses are supported by the funds. Others, for instance the Nordic Investment Bank, have directly aligned social bond spending to specific UN sustainable development goals and will report on the progress made towards each target.
The above transparency, alongside the bonds typically offering comparable yields to their non-social counterparts, has boosted the appeal of social bonds to investors who are looking for their investments to make a positive social impact on the world. Indeed, all COVID-19 bonds coming to market have been oversubscribed.
Fixed income market driving sustainability
Holding an estimated $100tn, the fixed income market has the potential to play an integral role within the financial system in allocating capital to drive sustainable progress. In a move that pioneered the creation of the green bond market, the European Investment Bank (EIB) issued the first Climate Awareness Bond (CAB) in 2007.
Although once a niche market, in recent years increasing investor focus on the unfolding climate crisis has propelled green bonds in to the mainstream with $254.9bn issued globally last year, according to Climate Bonds. The green bond market provides a promising roadmap for other sustainable bonds, and offers a look at what the post-pandemic sustainable finance landscape could achieve.
The impetus seen in capital markets to quickly redirect capital to the health crisis is a reassuring step for sustainable finance. The success of these bonds, and green bonds, indicates how social bonds can be used to finance solutions for particular concrete sustainability issues.
We view it as our responsibility to channel the capital that we have been entrusted with to play an active role in addressing the greatest challenges the world is facing, while also delivering a strong financial return for our clients are key priorities for us. Green bonds are an integral part of our investment methodology. Furthermore, we welcome the opportunity to work with supranationals and similarly sustainability-minded corporates to fund the fight against the coronavirus pandemic.
|Type of Bond||Feature|
|COVID-19 bond||Use-of-proceeds bonds that raise funds for projects relating to the response to COVID-19. The bonds can be classified as social bonds.|
|Social bond||Use-of-proceeds bonds that raise funds for new and existing projects with positive social outcomes.|
|Green bond||Use-of-proceeds bonds that raise funds for new and existing projects with positive environmental outcomes.|
|Sustainability bond||Bonds in which the proceeds will be exclusively applied to finance green and/or social projects. All of the bonds above can be classified as sustainability bonds.|
Investments can fall as well as rise in value. Your capital or the income generated from your investment may be at risk.
- Has been prepared by Barclays Private Bank and is provided for information purposes only
- Is not research nor a product of the Barclays Research department. Any views expressed in this communication may differ from those of the Barclays Research department
- All opinions and estimates are given as of the date of this communication and are subject to change. Barclays Private Bank is not obliged to inform recipients of this communication of any change to such opinions or estimates
- Is general in nature and does not take into account any specific investment objectives, financial situation or particular needs of any particular person
- Does not constitute an offer, an invitation or a recommendation to enter into any product or service and does not constitute investment advice, solicitation to buy or sell securities and/or a personal recommendation. Any entry into any product or service requires Barclays’ subsequent formal agreement which will be subject to internal approvals and execution of binding documents
- Is confidential and is for the benefit of the recipient. No part of it may be reproduced, distributed or transmitted without the prior written permission of Barclays Private Bank
- Has not been reviewed or approved by any regulatory authority.
Any past or simulated past performance including back-testing, modelling or scenario analysis, or future projections contained in this communication is no indication as to future performance. No representation is made as to the accuracy of the assumptions made in this communication, or completeness of, any modelling, scenario analysis or back-testing. The value of any investment may also fluctuate as a result of market changes.
Barclays is a full service bank. In the normal course of offering products and services, Barclays may act in several capacities and simultaneously, giving rise to potential conflicts of interest which may impact the performance of the products.
Where information in this communication has been obtained from third party sources, we believe those sources to be reliable but we do not guarantee the information’s accuracy and you should note that it may be incomplete or condensed.
Neither Barclays nor any of its directors, officers, employees, representatives or agents, accepts any liability whatsoever for any direct, indirect or consequential losses (in contract, tort or otherwise) arising from the use of this communication or its contents or reliance on the information contained herein, except to the extent this would be prohibited by law or regulation. Law or regulation in certain countries may restrict the manner of distribution of this communication and the availability of the products and services, and persons who come into possession of this publication are required to inform themselves of and observe such restrictions.
You have sole responsibility for the management of your tax and legal affairs including making any applicable filings and payments and complying with any applicable laws and regulations. We have not and will not provide you with tax or legal advice and recommend that you obtain independent tax and legal advice tailored to your individual circumstances.
THIS COMMUNICATION IS PROVIDED FOR INFORMATION PURPOSES ONLY AND IS SUBJECT TO CHANGE. IT IS INDICATIVE ONLY AND IS NOT BINDING.