AMID the economic fallout caused by the ongoing Covid-19 pandemic, interest in sustainability financing continues to remain robust. That’s based on recent data compiled by Moody’s Investor Service (Moody’s) which saw the volume of sustainability bonds (which includes green and social bonds) set a new record of issuance in Q2 2020, totalling US$99.9 billion.
Representing a 65% increase compared to Q1 2020, the growth in volume was primarily supported by increased issuance of social bonds to address problems caused by the pandemic. In Q2 2020, issuers collectively raised US$33 billion worth of social bonds.
Some issuers have specifically created Covid-19 dedicated social bonds such as South Korean bank Nonghyup Bank, which will use proceeds to support small and medium enterprises affected by the pandemic. Other South Korean issuers such as Korea South-East Power and Kookmin Bank over the last couple of months have likewise issued their own Covid-19 social bonds to battle the financial impact of the health crisis.
“Combined social and sustainability bond volumes could now total US$150 billion for the year as coronavirus pandemic response efforts and heightened awareness of social issues related to healthcare and inequality continue to support issuance,” states Matthew Kuchtyak, AVP-analyst at Moody’s Investors Service. Moody’s forecasts that total sustainable bond issuance in 2020 could hit between US$325 billion to US$375 billion by the end of 2020.
The current encouraging market signs highlight the incredible journey sustainable finance has taken since its earliest days more than a decade ago with the issuance of the first green bond. Now the market is evidently being expanded and is opening up financing revenues for projects that aim to adhere to the collective values set out in the United Nations Sustainability Development Goals.
Though Covid-19 will eventually fade away, the lessons and experiences from the pandemic are sure to have a lasting impact and are poised to reshape the way companies and investors examine the viability of businesses against pressing global issues. This bodes well for the overall continued growth of the sustainability bond market which will continue to see market participation from different stakeholders for years to come as ESG (environmental, social and governance) focus becomes the new normal in finance.
For now, the immediate excitement is around the potential diversification of sustainable bond or social bond issuers beyond the traditional supranationals. Following the release of the new Sustainability-Link Bond Principles and the 2020 update of the Social Bond Principles, issuers taking a wait and see approach are now being given extra resources and guidance to craft their own sustainable financing journey in the near-term future.
“In our opinion, the diversification of the social bond market mirrors that of the green bond market, which was also largely driven by supranationals in its early years. Similar to how the green bond market rose off the back of climate policies and the transaction to a low carbon/net-zero economy, we believe renewed interest from organizations and investors in social risk factors could have a galvanizing impact on social bond issuance,” highlights an S&P Global Ratings research note.