Green bond comment, May 2020: Coronabonds

By Peter Cripps

The raft of issuance in the wake of the coronavirus pandemic is another demonstration of how the bond market can be used to help tackle environmental and social problems, says Peter Cripps

The coronavirus pandemic is changing the world in which we live, and it is also leaving its mark on the bond market.

There has been a proliferation of bonds issued in response to the Covid-19 pandemic. (See box below.)

These bonds, which have raised tens of billions of dollars, have come in a variety of shapes and sizes, with a bewildering array of labels and structures. But they all demonstrate how the fixed income market is, with increasing frequency, being used as a tool to solve or combat problems, whether climate change or Covid-19.

I think the green, social and sustainability bond market deserves some credit for this (pardon the pun!).

While many of the bonds issued in response to Covid-19 cannot claim to be social or sustainability bonds, many of them do designate the use of proceeds. This is a practice that has been promoted by the labelled bond market over recent years and is now becoming more widely accepted and expected.

Many actors in the green bond market have long called for the ‘use of proceeds model’ to be rolled out across the entire fixed income market. (For example, see our recent comment piece from Mike Eckhart, one of the original authors of the Green Bond Principles.)

The bond market has therefore evolved over the last decade from being a laggard when it comes to incorporating environmental, social and governance (ESG) considerations, to being at the forefront the financing solutions to environmental and social problems.

Because of the urgency of the situation, many issues lack external reviews. For example, Swedish medical supplier Getinge issued SEK1 billion ($100 million) of commercial paper, pledging to use the proceeds to make ventilators to help patients stricken with Covid-19. Getinge said it believes the notes are in line with the Social Bond Principles, but said it had not had time to obtain a second-party opinion due to the urgency of the current situation. As a result, it has not given the paper a 'social' label – it has instead used a 'Covid-19' label.

Environmental Finance has explored what makes a good coronavirus bond, and whether the rush to issue in response to the pandemic risks lowering some of the best practice in the market promoted by the Green Bond Principles. (See feature here.)

The pandemic is already changing the shape of the labelled bond market. There has been a noticeable tilt away from green bonds and towards social bonds in recent weeks, for understandable reasons.

Figures from Environmental Finance’s bond database shows that green bond issuance has stalled in recent months, but it has been replaced with issues of Covid-19 bonds, which often carry social or sustainability labels.

This could help rectify claims among sustainable finance practitioners that social considerations have been overshadowed by environmental considerations in recent years, and now also need to be given more priority.

The social bond market, which as always being a fraction of the size of the green bond market, could finally be about to have its day in the sun.

Previous Covid-19 related bonds include:

A selection of our articles related to Covid-19 and fixed income can be found below:

• Analysis: What makes a good corona-bond?
• Moody's lowers 2020 sustainable bond forecast after Q1 slump
•  Sovereign social bonds to protect lives and livelihoods. An exceptional shock deserves an exceptional response, argues Farah Imrana Hussain
• Expect green bond rebound amid Covid-19 recovery, HSBC says. The recent dip in green bond issuance is set to be short-lived, with a rebound likely due to factors including the implementation of the EU Green Deal and COP26, according to HSBC.
• Dai-ichi Life boosts sustainable investments with Covid-related bonds. Japanese insurer Dai-ichi Life has increased its investments in social and sustainability bonds by about $190 million via two private Covid-19-related bond placements.
• Länsförsäkringar makes third Covid-19 bond investment. Brings Swede's total social bond investment to SEK 1.2bn
• The response to Covid-19 must be bold, green and social. The recovery response to the Covid-19 pandemic is an unintended opportunity to shift the world to a greener economy, but the social emergency and future social demands cannot be ignored, argues Marcio Viegas
• Mapfre launches guaranteed mutual fund to finance healthcare equipment. Underlying asset is COVID-19 muni bond and fund guaranties 3% return over three years
• HSBC raises 2020 estimate for social, sustainability bond issuance. HSBC expects issuance of social and sustainability bonds to reach between $100 billion and $125 billion this year - an increase of $25 billion on its previous estimate - because of the market's response to the Covid-19 virus.
• Covid-19 triggers payout on World Bank's pandemic bonds. The World Bank has confirmed market expectations that the Covid-19 outbreak has triggered the pandemic catastrophe bonds issued by the bank's Pandemic Emergency Financing Facility (PEF).
• World Bank sustainability bond raises $8bn for Covid-19 response. The World Bank has sold an $8 billion Sustainable Development bond to help developing countries address the impacts of the Covid-19 pandemic.
• Nippon Life invests in IFC social bond tackling Covid-19. Japanese insurance company Nippon Life has bought a AUD 200 million ($126 million) social bond issued by the International Finance Corporation (IFC), in a private placement.
• Getinge issues Covid-19 bonds to make ventilators. Swedish medical supplier Getinge has issued SEK1 billion ($100 million) of commercial paper, pledging to use the proceeds to make ventilators to help patients stricken with Covid-19.
• Covid-19 bonds expose limitations of EU Green Bond Standard, says ISS-ESG. The flurry of new bonds raising funds to tackle the Covid-19 pandemic are examples of innovative debt products that are outside the scope of the EU's proposed Green Bond Standard (EU GBS), noted ISS ESG, a specialist ratings and advisory firm.
• Sustainalytics draws up Covid-19 social bond criteria
• Indonesia issues largest Covid-19 related bond. Indonesia has raised $4.3 billion from a long-dated bond to help fund the country's efforts to deal with the Covid-19 epidemic.
• Social bonds and Covid-19 - The next phase. Social bond issuers have a unique opportunity to do the heavy lifting in the fight against Covid-19, writes Christopher Wigley
• Folksam snaps up more Covid-19 bonds. Swedish insurance company Folksam has invested a further SEK1billion ($99 million), on top of the SEK700 million announced last month, in bonds aimed at alleviating the social and economic effects of the Covid-19 pandemic.
• Covid-19 slams the brakes on green bond issuance. Issuance of green, social and sustainability (GSS) bonds slowed dramatically in the first three months of 2020, as the severe impact of the Covid-19 pandemic on the global economy became clear.
• Bond issuers get coronavirus guidance from ICMA. Guidance on how social bond issuers can contribute to the fight against the coronavirus pandemic has been published by the International Capital Market Association (ICMA).