Feel good investment: Social, sustainability bonds surge in Covid-19 world

Google parent issued a $5.75 billion sustainability bond, the largest such offering in history

At a time when project execution and fresh fundraising has slowed down, global sustainable bond issuance totalled $99.9 billion in the April-June quarter of 2020, a quarterly record and 65 per cent higher than the first quarter of this calendar year. It is expected that heightened focus on environment, social and corporate governance (ESG) factors will support the continued growth of green, social and sustainability bonds.

According to a Moody's Investor Service report, record quarterly issuance of both social bonds at $33 billion and sustainability bonds at $19.1 billion drove the strong combined total. Though cumulatively, it is still modest compared to the last year. Green bond issuance, on the other hand, was $47.8 billion, a 26 per cent increase over the first quarter, but still modest compared with last year. “Combined social and sustainability bond volumes could now total $150 billion in 2020 as coronavirus (Covid-19) pandemic response efforts and heightened awareness of social issues related to healthcare and inequality continue to support issuance,” said the report.

Financing related to pandemic response efforts will, however, subside as the worst of the crisis fades, though an enduring focus on environmental and social issues will continue to prompt public and private sector issuers alike to consider issuing debt instruments tied to specific sustainable projects, said the global report released on Monday.

It pointed out Alphabet Inc (Aa2 stable), the holding company of Google, which issued a $5.75 billion sustainability bond in early August, the largest such corporate offering in history. It will use the proceeds of the transaction to finance a wide array of projects in categories that include: energy efficiency, clean energy, green buildings, clean transportation, circular economy and design, affordable housing, commitment to racial equity, and support for small businesses and Covid-19 response.

Three ESG areas in particular--institutional preparedness for more types of risks, social considerations related to healthcare access and economic inequality, and shifts from shareholder primacy in corporate decision-making towards a consideration of the needs of other stakeholders, including society at large, predicted the report.

For the green bond issuance, which was a laggard, a gradual rebound in the second half of the year is expected. Moody’s Investor Service maintained a revised forecast of $175-225 billion for 2020.

Combined social and sustainability bond issuance may near that of green bonds this year for the first time ever. Sustainability-linked loan volumes were modest in the first half of the year ($47.2 billion), while green loan volumes ($13.2 billion in the first half) were largely in line with 2019 levels.

The Covid-19 pandemic will intensify the focus of companies, investors and other stakeholders on ESG factors, with scrutiny extending beyond public health crises to other potentially high impact issues, such as climate change. The heightened focus on ESG factors will support the continued growth of green, social and sustainability bonds.

Eleven issuers brought tranches of at least $1 billion to the market, led by a 2.6 billion euro bond from the Government of France (Aa2 stable), a $1.7 billion bond from the Metropolitan Transportation Authority, NY (A2 negative) and a 1.5 billion euro bond from Société du Grand Paris.