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.

Our approach

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.

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