The credit research team at PIMCO has identified five social themes emerging from the Covid-19 pandemic that are affecting the creditworthiness of companies, and driving new social bond issuance.
According to credit analyst Del Anderson and head of ESG business strategy Olivia Albrecht (pictured), the crisis has highlighted the importance of the social pillar of ESG. As a result, the group said it intends to deepen its analysis of material social factors as part of its fundamental research on companies.
Albrecht said: “It is clear through dialogues with our global clients, issuers, and policymakers that the current crises facing the global economy will only sharpen the focus on how businesses interact with all stakeholders.
“Reflecting this, we expect greater transparency going forward on social dimensions, which would be a welcomed development. As investors, we are committed to encouraging greater transparency from companies.”
To help it with its analysis of companies from a social standpoint, PIMCO has identified five key themes to watch as a result of the global pandemic.
– Health and well-being as key priorities
According to PIMCO, a key focus should be how companies have responded to the pandemic to keep their workers safe, especially in essential industries. This includes improving healthcare options and benefits, such as mental health counselling and childcare.
– Work is being reallocated
With unemployment figures soaring across the globe, another key focus is on what happens to those workers that have lost their jobs as the recovery process begins.
– The way many people work may change permanently
According to a recent Gallup poll, three in five US workers say they prefer to work from home as much as possible even after the restrictions are lifted. This shift means employers will have to rethink working styles and benefits with a focus on greater flexibility.
– Supply chains will need to be derisked
PIMCO expects some firms will look to reduce the risk and complexity of global supply chains, with a key step being improved transparency beyond large, first-tier suppliers.
– Cybersecurity and privacy defenses will increase in importance
As more people are working remotely and shopping online there will be an increased focus on making this accelerated transformation to digital safer. A recent Verizon report noted VPN usage is up over 80% and collaboration tool usage is up over 1,200% compared to a typical pre-Covid day.
“The bottom line is that many companies will require capital to successfully manage these five social themes, and we believe that many will come to the bond market to raise capital through debt financing,” said Anderson.
According to PIMCO, the social bond market has already had a record year for issuance so far, totaling over $20bn (£16bn) raised for social projects globally. The group expects issuance of social and other green bonds to soar further as a result of the increased focus on the ‘S’ pillar of ESG.
PIMCO has identified an “immediate need” for such bonds in sectors such as healthcare, pharmaceuticals, manufacturing and small businesses (including lending to small businesses).
“This list could be expanded as we learn more about the economic consequences of Covid-19,” Albrecht said.
“Importantly, social bonds should be structured to meet immediate needs without compromising on long-term sustainability goals. Our view is that an effective way to achieve social, environmental, and economic goals is to link issuance to the Sustainable Development Goals (SDGs).”