The COVID-19 bonds playing a vital role in global recovery
One of the most powerful forces for sustainable change already exists. The fixed income market holds an estimated US$100tn of assets1, giving it the potential to play an integral role within the financial system in allocating capital to drive sustainable progress. This was seen most pertinently in response to the COVID-19 pandemic as capital markets acted quickly to redirect funding to the crisis.
While the rapid spread of the pandemic and subsequent lockdown measures around the world placed immense strain on public health systems and economies, social bond issuance came to the fore, with issuances raising more than US$163bn by December 20202. This is more than ten times the US$13bn raised in 20192.
While green bonds have been an integral part of our investment methodology ever since the strategy’s inception, over the last year we’ve welcomed the opportunity to join forces with supranationals and similarly sustainability-minded corporates to fund the fight against the pandemic by investing in social bonds. By investing with us, your money is being directly channelled into projects that advance global sustainability.
Unless otherwise stated, companies referenced in this report were companies held by our Sustainable Total Return Strategy as of 31 December 2020 and may no longer form part of our portfolios. Reference to specific companies in this report is not an opinion as to their present or future value and should not be considered investment advice or a personal recommendation. They’re included in this report to demonstrate the positive impact companies can have.
View the companies below to find out more about their COVID-19 bonds.
African Development Bank
In the largest ever US dollar denominated social bond in international capital markets at the time of issuance, the African Development Bank raised a landmark US$3bn ‘Fight COVID-19’ social bond at the end of March 20203.
As COVID-19 surges across the continent placing additional strain on already fragile healthcare systems, the funds have been mobilised rapidly to finance equitable access to healthcare services. The capital raised by this bond issuance has been essential to help cushion the impact of devastated livelihoods and ravaged economies across the region. Unsurprisingly, the bank was awarded the ‘Best Issuer of COVID-19 Bonds’ at the Global Capital Bond Awards 2020 for their leadership in sustainable bond issuance4.
Bank of America
In a first from a global commercial bank , the Bank of America sold a debut US$1bn corporate coronavirus bond to finance those on the frontline of the pandemic5. The proceeds are being used to fund not-for-profit hospitals treating COVID-19 patients, businesses that make or supply protective equipment and companies creating diagnostic tests or vaccines.
International Bank for Reconstruction and Development
Given crowded living conditions, poor access to hygiene and overburdened healthcare systems, it’s particularly important that developing countries act quickly to contain the spread of the coronavirus. To this end, the International Bank for Reconstruction and Development (IBRD), the lending arm of the World Bank, priced two large bonds in 2020. This made funding available to curb the rapid spread of the virus by strengthening healthcare systems in developing member countries of the World Bank, with a particular focus on rolling out critical immediate response health programmes.
In another world first, the dollar bond was the largest ever US dollar denominated bond issued by a supranational and we are pleased to report that Barclays jointly led the issuance6.
In their impact reporting the IBRD has evidenced the allocation of funding from these issuances to a number of World Bank projects.
This includes7 a US$20m programme to support Ecuador’s COVID-19 response plan, providing medical care and strengthening the national public health system. A US$40m project to source equipment and train health workers and COVID-19 front line responders in Lebanon has been reported. An allocation of US$1bn has also been deployed to support India in purchasing COVID-19 testing kits, ventilators, medicines, setting up isolation wards and increasing infection control measures.
European Investment Bank
With an ageing population and a comparative lack of pandemic preparedness, high coronavirus infection and death rates have surged across Europe. As a result, the European Investment Bank (EIB), the EU’s lending arm, has mobilised billions to counter and alleviate the effects of the crisis. This includes financing the race for a vaccine, solutions to limit the virus’ spread, as well as measures to contain the economic damage.
The ambitious European COVID-19 response plan included €100m in debt financing deployed in June 2020 to support the development of the BioNTech and Pfizer COVID-19 vaccine8. This enabled BioNTech to expand its manufacturing capacity to fulfil global demand for its vaccine. The loan is backed by the InnovFin Corporate Research Equity programme and the European Fund for Strategic Investments; both of which support innovative and higher-risk projects financed by the EIB, with a guarantee from the EU budget.
Early on in the pandemic, we invested in EIB’s €1bn COVID-19 bond issuance which had a mandate to finance urgent healthcare infrastructure and medical equipment needed across the EU. This includes ventilators, beds and homecare equipment, converting facilities in to emergency intensive care units. It also covers mobile units such as container hospitals, mobile diagnostics and sterilisation units, as well as IT and telecommunication system upgrades for diagnostic and epidemiological modelling.
Early reporting from the EIB evidences a large portion of the funding having been allocated directly to where it was needed most urgently -the coronavirus response in Madrid, one of the worst affected regions in Europe.
We believe that it is our responsibility to channel the capital we have been entrusted with into playing an active role in addressing the greatest challenges the world is facing, whilst also delivering a strong financial return for our clients.
Together, the funds raised by COVID-19 bonds have played an important role in tackling the immense challenges created by the pandemic and offer a tangible way for investors to finance solutions for particular concrete sustainability issues. All of the COVID-19 bonds that have come to market have been oversubscribed, demonstrating how investors can use their capital as a powerful force for good, further catalysing a profound shift towards sustainable finance.
Investments can fall as well as rise in value. Your capital or the income generated from your investment may be at risk.
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