The Covid-19 pandemic created one of the gravest global health and economic emergencies for a generation, requiring an unprecedented increase in issuance to fund the rapid response from sovereigns, supranationals and agencies.
The bond market reaction was immediate. The International Finance Corporation led the way with a $1bn social bond following an announcement of an $8bn package to support countries affected by Covid-19. African Development Bank’s $3.1bn social bond, launched on March 27, used novel labelling to gain investor attention, while the World Bank has issued in large size and a variety of currencies to help its members tackle the pandemic.
“It was clear from the beginning of the crisis that both issuers and investors wanted to lead from the front and help in any way possible,” says Jeff Tannenbaum, head of EMEA DCM and leveraged finance at BofA. “For our SSA issuers, this meant advising and then structuring suitable financing alternatives whilst working with our markets colleagues to develop distribution.”
A plethora of issuers followed — mostly SSAs, but also corporates and banks — leading to $30bn of social bonds during the second quarter, almost double the $18bn issued in the whole of 2019.
“It’s extraordinary how successful the market was in absorbing the volume of supply across all asset classes,” says Adrien de Naurois, head of EMEA debt syndicate. “In SSAs what I find astonishing is that our clients were able to issue at such short notice and so successfully in such size in all currencies with this novel labelling.”
Natalie Mordi-Hillaert, the bank’s head of EMEA ESG capital markets, points to the way that the pandemic, urgency around climate change and the growing trend of factoring in environmental, social and governance risks in investment decisions is driving huge ESG fund inflows. In the second quarter alone, European sustainable funds attracted inflows of €54.6bn, of which €16.6bn went into sustainable fixed income.
“Investors are actively looking for ways they can help society deal with the fallout of Covid,” she says. “There is a genuine demand for investable products linked to positive societal outcomes alongside profit and Covid-19 bonds, a subset of social bonds, are one such instrument.
“Their alignment to the Social Bond Principles maintains the integrity of an existing market and offers investors further insight to the tremendous efforts from the public sector to address the issues at hand.”
BofA had already issued its own debut social bond before the crisis hit, and in May became the first bank in the US or Europe to issue a Covid-19 bond. That $1bn deal was specifically for lending to its healthcare clients and those who were helping make equipment such as ventilators or PPE supplies for hospitals.
Besides the Covid-19 response, the social and sustainability themes have been driven this year by the focus on racial inequality in the US and globally. “It is our responsibility to do what we can to support our clients as well as important issues like climate change and inequality,” says Tannenbaum.
At the end of September, Bank of America priced a $2bn Racial Equality Sustainability Bond to help fight inequality in black and hispanic communities in the US. It follows about $8bn of green and social bonds that it has issued since November 2013. “Personally, Bank of America’s pledge of $1bn to address inequality in the US is particularly important,” says Mordi-Hillaert.
Ultimately, the Covid-19 label delivered as intended, raising awareness of the financing required. “The order books for our Covid deals were more diverse than in a standard transaction,” says de Naurois. “That allowed these issuers to secure size and relatively attractive pricing.”
“Bank of America has always led from the front both as an issuer and an advisor and will continue to do so in order to drive change,” adds Tannenbaum.
