Europe plans $118 billion in social bonds to fund recovery

Bloomberg

The European Union looks (EU) set to launch a foray into social bonds, a market that has already swelled four-fold this year to fund projects to help societies recover from the coronavirus.
The bloc’s first ever social bond sale is expected to come in the second half of October, as part of up to 100 billion euros ($118 billion) of debt to fund short term work schemes. The need to borrow to cope with the virus has made such debt the fastest-growing part of sustainable finance this year.
“We are obviously financing social expenditure — and therefore we will be in a position to issue bonds that will qualify as social bonds,” said Gert Jan Koopman, the EU Commission’s director-general for budget. “And this is significant given the volumes concerned. In this, we would probably nearly triple the EU social bonds markets through this program.”
Sales of debt for projects aimed at helping society are at a record $72 billion this year, four times the total in 2019, and taking cumulative total issuance to $117 billion. A pair of French state agencies have become the biggest borrowers so far.
The EU has mandated Barclays Plc, Deutsche Bank AG, DZ Bank AG and HSBC Holdings Plc to hold a call with investors on the issuance plans, under its so-called “Support to mitigate Unemployment Risks in an Emergency” (SURE) program. In total it plans a 750-billion-euro pandemic recovery fund, with another big chunk coming from its first green bonds.
Koopman told a webinar with pension investor APG that he sees global buyers flocking in, with “pronounced” market interest and funds keen on the development of a bond curve. He couldn’t be specific on the maturity of the debt but said financing will be repaid over 30 years.
The assets should have appeal beyond specialist funds, according to Mitch Reznick, head of sustainable fixed income at Hermes Fund Managers Ltd.
Social debt surges to record as borrowers tackle coronavirus
Sales of debt for projects aimed at helping society surged to a record in the first half of the year as governments, supranational entities and companies boosted borrowing to get through the pandemic.
Issuance across the globe amounted to $41.9 billion, a 376% jump from the same period a year ago, driven by large sales from issuers like French unemployment insurance management body Unédic Asseo, the Republic of Korea and the African Development Bank, according to a new report by BloombergNEF. The sale of green bonds — a separate category of sustainable debt that’s the largest by dollar volume — falls 8% to $119.6 billion in the period.
“The social bond surge was strongly driven by the pandemic, but this also increased awareness of social performance among investors and issuers in general,” Maia Godemer, a research analyst for green and sustainable finance at BNEF and co-author of the report, said in an interview.
Unédic borrowed 4 billion euros in May to fund its response to Covid-19, the biggest-ever social bond. It sold the same amount last month, with order books for both deals heavily oversubscribed by investors. UK publishing company Pearson Plc issued an inaugural 350 million-pound social bond to finance the provision of online learning services as well as further education and vocational qualifications, the first deal from the communications sector
this year.