Social Bond Issuance Could Approach $100 Billion This Year

Sustainable Finance Is Starting To Address Social Justice As COVID-19 Raises The Stakes, S&P Global Ratings Report Says

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Q3 2020 hedge fund letters, conferences and more

Social Bond Issuance Will Help The Economic Fight Against COVID-19

NEW YORK (S&P Global Ratings) Nov. 10, 2020--S&P Global Ratings says sustainable finance, especially social bonds, will continue to serve as a tool in the economic fight against COVID-19 and the social inequalities and justice issues that have proliferated as a result.

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Early in the pandemic, the coronavirus was seen as the "great leveler," hitting rich and poor alike. Instead, it's become apparent that COVID-19 is the "great divider," aggravating the many structural inequities between richer and poorer nations and people--leading to demands for social justice.

"The pandemic has become a health crisis that also has huge ramifications for social justice that will dominate social, political, and economic agendas for years to come," said S&P Global Ratings analyst Lori Shapiro in the report published today, "Sustainable Finance Addresses Social Justice As COVID-19 Raises The Stakes."

Instead of growth at all cost, there are calls for equitable, sustainable growth that benefits all, including the most vulnerable populations.

Support From Government Programs And The Financial System

Part of the solution will be government programs that help shape a just recovery as well as greater support from a financial system that rallies around social issues.

"We are already seeing that investors in the capital markets have an appetite for debt instruments dedicated to meeting needs for housing, education, health care, and employment," said Ms. Shapiro.

To fund programs to address the problem, governments, supranationals, and corporations, among others, have accelerated issuance of sustainable instruments--including social bonds, where issuance jumped nearly four times so far this year to US$71.9 billion from the 2019 level.

"We think the sustainable debt market, partly because of the rapid rise in social bond issuance, could exceed $500 billion this year," Ms. Shapiro said.

Sustainable Finance Addresses Social Justice As COVID-19 Raises The Stakes

Key Takeaways

  • Economic shocks from the pandemic have widened existing inequities around the world,
    leading to calls for greater social justice in dealing with this health threat.
  • Poorer people, minorities, and women are suffering disproportionately from growing
    health, housing, income, and education gaps under measures to contain COVID-19 that
    could set them back for years to come.
  • To fund programs to address the problem, governments, supranationals, and
    corporations, among others, have accelerated issuance of sustainable
    instruments--including social bonds, where issuance jumped nearly four times so far
    this year to US$71.9 billion from the 2019 level.
  • We think the sustainable debt market, partly because of the rapid rise in social bond
    issuance, could exceed $500 billion this year.

This call is not new, but countries have only made commitments to address it in recent years. The UN's 17 Sustainable Development Goals, adopted by member states in 2015, aim to end poverty, protect the planet, and ensure prosperity for everyone by 2030. The goals include good health, gender equality, and access to affordable, safe housing and essential services, among others. In keeping with the SDGs, the Paris Agreement of 2015 acknowledges the need for a "just transition of the workforce and the creation of decent work and quality jobs" in combatting climate change.

The world has made some progress in the past few years in advancing these agendas, but COVID-19 is halting progress and threatening to reverse gains. This is showing up in diverging health outcomes and increasing global poverty rates, to name just two. It's also evident in the growing backlash against systemic racism and reports of police brutality, as seen in the Black Lives Matter movement in many countries, and, more recently, the End SARS protests in Nigeria (see "Why Corporations' Responses To George Floyd Protests Matter," published on July 23, 2020, and "Diversity And Inclusion As A Social Imperative," published on Aug. 3, 2020). The pandemic has become a health crisis that also has huge ramifications for social justice that will dominate social, political, and economic agendas for years to come.

Financial Markets Are Showing Greater Interest In Funding Social Projects

Interest in social justice issues by investors, and companies and nations issuing debt, has until recently been relatively slim, with social bond issuance totaling only 5% of the sustainable debt market in 2019 (see "A Pandemic-Driven Surge In Social Bond Issuance Shows The Sustainable Debt Market Is Evolving," published June 22, 2020). But that is changing rapidly because of the pandemic. S&P Global Ratings sees growing investor interest in funding social projects that address rising unemployment, income inequality, and strains on housing, health care, and education systems. Issuance of sustainable investments (including social bonds) to finance both public and private responses and create positive social outcomes, have accelerated. As of October, social bond issuance stood at US$71.9 billion, nearly four times greater than in 2019 (see chart 1). We project that social bond issuance could approach $100 billion this year, while total sustainable debt could hit a record $500 billion up from $341 billion in 2019.

Social Bond Issuance

Read the full report here.