Mark Oliphant of The International Stock Exchange Group assesses the impact of the rise in social bond issuances in the wake of the pandemic on the green bond market

Green finance was the main focus of January’s World Economic Forum in Davos, amid an increasing body of opinion that there is an alignment between tackling climate change and economic interests; what might be deemed purposeful profits. And then came Covid-19.

So, what has changed, if anything? Well, one impact of Covid-19 has been the much talked about benefit to the environment, both in the short term and with the potential for this to be longer lasting. Indeed, there is an argument to suggest that the restrictions imposed by governments and their subsequent funding initiatives to help society meet the financial challenges posed by Covid-19 have been not only social but also, by proxy, green finance initiatives.

While green bond issuance has waned since the onset of Covid-19, issuances of sustainability and social bonds have accelerated

There is, though, sentiment emerging that in the battle to attract capital from investors green finance could be on the back foot now in comparison with social initiatives. Sustainalytics has reported that green bonds have stalled amid Covid-19, with issuances in March 2020 only a third in value of the previous year. Similarly, data from the Climate Bonds Initiative (CBI) suggests that monthly issuance of green bonds declined by approximately 90% between February and March this year.

While green bond issuance has waned since the onset of Covid-19, issuances of sustainability and social bonds have accelerated. For example, the Institute of International Finance has reported recent monthly volumes of more than $7bn in social bond issuances, compared with a monthly average of $1.2bn in 2018/19, and with the prospect of a further surge.

Philips and Pfizer are among the corporate giants that have issued sustainability bonds greater than $1bn that will target at least some of the proceeds to Covid responses, while governments and development banks from around the world have been issuing specific Covid bonds to help meet the challenges posed to society by the pandemic.

New York governor Andrew Cuomo rings the opening bell at the NYSE after the Covid-19 lockdown. (Credit: Reuters)

Many social bonds have been established with strategies linked to the UN Sustainable Development Goals, and the International Capital Markets Association (ICMA) has both Green Bond Principles and Social Bond Principles. ICMA, along with ratings agencies and other sector specialists, has adopted updated social/Covid bond guidelines to take into account the specific healthcare and socio-economic measures being taken in respect of the pandemic.

In our experience to date, these standards have been less defined and less universal than those that have been established in the more developed green space, where examples include the CBI certification. Meanwhile, the EU has published its sustainable finance taxonomy for climate change mitigation or adaptation, along with an EU green bond standard.

At The International Stock Exchange (TISE) we have developed a green market segment, TISE GREEN, with debt or equity issuers required to provide third-party verification against such a recognised standard. In addition, we have existing issuers, such as social housing investment vehicles, on the market that would likely qualify for a specific social segment. This is an area we are monitoring closely, not least as a result of the impact Covid-19 is having on socially responsible investing and the accompanying assessment measures.

I have observed a gravitation towards a more blended sustainable approach and with considerations of ESG factors

Taking a step back, what I have observed in recent months has been a gravitation towards a more blended sustainable approach and with considerations of environmental, social and governance (ESG) factors. For example, Morningstar has recently taken sole ownership of Dutch ESG analysis firm, Sustainalytics. Announcing the deal, Kunal Kapoor, CEO of Morningstar, said: “Modern investors in public and private markets are demanding ESG data, research, ratings and solutions in order to make informed, meaningful investing decisions.”

What is more, there also appears to be a wide body of early evidence to suggest that an ESG focus (by both companies and their investors) has also been vindicated by the pandemic. Bloomberg, MSCI, Morningstar, HSBC and Bank of America have all reported that over recent months ESG leaders have outperformed major benchmarks and/or those companies with worse ESG profiles. Those with the better ESG ratings were also less volatile, thus being seen to represent less risk.

What all of this evidence seems to suggest is that Covid-19 has led to a rebalancing of focus away from such a singular focus on green finance per se, to an approach where there is a stronger accent on the ‘S’.

A food bank volunteer – there is potential for repricing of social issues in ESG ratings. (Credit: Hannah McKay/Reuters)

The UN Environmental Programme report ‘Implications of the Covid-19 Pandemic for Global Sustainable Finance: An Initial Framework for Response Strategies’ talks about the “drive for ESG alpha” given the “surge of focus on social issues”. It notes that “while it is too early to tell what the long-term impacts of this increased focus maybe, there is potential for a major ‘repricing’ of social issues in ESG ratings” and “going forward, this may motivate efforts to strengthen the coherence of ESG ratings information”.

The report sees the future being a focus of linking economic, social and environmental health considerations together, not just for the immediate response and the recovery, but to “strengthen resilience not only of the financial system, but of the economy, society, and environment”.

While there are fears that Covid-19 will, as with the global financial crisis of 2008, turn attention and focus away from sustainable investing of any hue, the early signs are that this will not be the case, and that it is here to stay as a growing and increasingly mainstream market.

Neither does it appear that the pandemic will completely shift allocations from green finance into social initiatives but rather, there will be a rebalancing between various considerations of responsible investing, and a greater appreciation of the interplay between these factors in ultimately delivering a happier and healthier planet for the future.

Mark Oliphant is head of communications at The International Stock Exchange Group. Twitter: @tisegroup Email: Web:

Note: this article does not constitute investment or other professional advice and should not be construed as a recommendation to buy, sell, hold or solicit any investment, security or other financial instrument or product.


Coronavirus  Climate Bonds Initiative  Sustainalytics  IIF  Green Bond Principles  Social Bond Principles  ICMA  TISE GREEN  UNEP 

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