Bonds that fight poverty are booming in nations strafed by Covid-19

A new weapon is gaining traction in the fight against the economic fallout of Covid-19: Debt sales designed to alleviate suffering.

Governments and companies in emerging markets have sold more than $15.9 billion of so-called social bonds so far this year, on pace to shatter last year’s total, according to data compiled by Bloomberg as of close on July 16. These bonds, with proceeds earmarked specifically for projects that address human needs — such as health, hunger and education — have already lured fresh investment to Chile and Ecuador, and soon, Ghana.
 

No nation fully dodged the societal side-effects of the pandemic, which erased jobs, increased poverty and exasperated inequality around the globe. Those pains have been made even worse by lopsided vaccination rollouts as the highest-income locales get immunised more than 30 times faster than those with the lowest. Such is the challenge and the opportunity presented by social debt. The notes are already starting to steal attention from green bonds, and have helped the total ESG market to top $3 trillion as investors seek out more responsible investments.
 

“We’re clearly seeing an increasing focus post-pandemic on employment generation, and on access to health care — all of which would be activities that could be packaged as proceeds within a social bond,” said Rahul Ghosh, managing director of ESG Outreach and research for Moody’s ESG Solutions.
 

It’s easy to see why leaders across the developing world are paying such close attention. The virus decimated local economies, underscoring demand for social programs and driving thousands to demonstrate. While idiosyncratic events typically spark protests, worsening inequality, food insecurity and social rights compound the problem § as seen recently in countries spanning South Africa, Cuba and Colombia. Social debt offers a possible solution, providing funds that can be used to address similar issues now, and in the future.
 

This type of debt jumped on investors’ radars when the European Union smashed historical records for orderbook size in selling its first social bond last year, and the bloc has since gone on to become the world’s top issuer. In emerging markets, the most social sales of the year came from the Chilean government, according to the data compiled by Bloomberg.