Sales of debt for projects aimed at helping society surged to a record in the first half of the year as governments, supranational entities and companies boosted borrowing to get through the pandemic.
Issuance across the globe amounted to $41.9 billion, a 376% jump from the same period a year ago, driven by large sales from issuers like French unemployment insurance management body Unédic Asseo, the Republic of Korea and the African Development Bank, according to a new report by BloombergNEF. The sale of green bonds — a separate category of sustainable debt that’s the largest by dollar volume — fell 8% to $119.6 billion in the period.
“The social bond surge was strongly driven by the pandemic, but this also increased awareness of social performance among investors and issuers in general,” Maia Godemer, a research analyst for green and sustainable finance at BNEF and co-author of the report, said in an interview.
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Unédic borrowed 4 billion euros in May to fund its response to COVID-19, the biggest-ever social bond. It sold the same amount last month, with order books for both deals heavily oversubscribed by investors. U.K. publishing company Pearson Plc issued an inaugural 350 million-pound social bond to finance the provision of online learning services as well as further education and vocational qualifications, the first deal from the communications sector this year.
“There is a groundswell of interest from companies to issue impact bonds of all types,” said Joshua Kendall, head of responsible investment research and stewardship at Insight Investment, overseeing $844 billion in assets as of March 31. “We anticipate that all labeled bonds will grow at a decent pace.”
The pace of issuance may slow as the jump was caused by the “exceptional circumstances of COVID-19,” he added.
Governments and supranationals have dominated social bond sales, representing more than 75% of total issuance in the space so far this year, up 23% from 2019, according to BNEF. Issuance from supranationals was five times last year’s $7.7 billion total volume, according to the report.
Social bonds were the “perfect financial response to the economic and social shock that welfare systems experienced,” BNEF’s Godemer wrote in the report.
Issuance of sustainable debt, which includes thematic loans and bonds focused on social and environmental endeavors, grew 13% between the first half of 2019 and the first half of 2020, reaching $267.3 billion through June 2020. Meanwhile, sales of sustainability bonds, which finance both social and green projects, was little-changed, totaling $19 billion in first half of the year compared with $19.8 in the same period last year.
Organizations that provide voluntary international frameworks for sustainable debt also enhanced their guidelines in the first six months of 2020 in response to the growing range of debt labels and investor concerns about lack of clarity. The International Capital Market Association, for example, published principles for sustainability-linked bonds to guide borrowers that want to raise environmentally friendly debt with terms tied to specific ESG goals.