COVID-19 helps drive record-level ESG bond issuance

COVID-19 helps drive record-level ESG bond issuance
Environmental, social and governance bond issuance increased 272% in April from a year ago
MAY 05, 2020

Global bond issuance linked to sustainability causes saw the kind of spike in April that is being attributed to a near-perfect supply and demand balance in terms of a debt market increasingly tuned in to social, environmental and governance issues.

According to Morgan Stanley, the $48.5 billion worth of ESG bonds issued last month was more than double the issuance of March and reflects a 272% increase over the issuance volume of April 2019.

Considering the overall size of the $50 trillion global bond market, which is more than three times the size of the global equity market, the sudden spike in ESG issuance has to be kept in perspective for coming off a relatively small base.

But the growth this year is still a significant sign of the times.

“These numbers will continue to grow because there are investors looking for these kinds of bonds,” said Ronald Bernardi, president and chief executive of Bernardi Securities.

Morgan Stanley’s report separates the general ESG bonds into sustainability, social and green, and cites an increase in sustainability-linked debt as connected to issuance related to fighting COVID-19.

The sub-category of social bonds, for example, represented $12.4 billion of April’s ESG issuance, which compares to zero social bond issuance in April 2019.

Social bonds have a use of proceeds linked to projects that address global social challenges, such as the coronavirus pandemic.

“With the COVID-19 pandemic, we are seeing increased demand for green bonds and impact bonds from our client base,” said Jennifer Tonda, director of institutional sales at 280 CapMarkets.

“If you look at the ESG ETFs for both equities and bonds, many have held up better than a lot of their peers,” she added. “Investors are going to be looking at how companies deal with the effects of COVID-19 which can also affect how we deal and prepare for future global crises and global warming.”

William Sokol, director of ETF product management at VanEck, said the increase in ESG-related debt reflects an evolution in the bond markets that more issuers are recognizing the demand from investors.

3 Questions: Kashif Ahmed describes his coronavirus recovery

3.39 min watch

“This year we’re seeing a big increase in sustainable bonds because of a big increase in social and healthcare related spending, but investor demand continues for values and mandates around ESG,” he said.

Reporting and standards related to ESG debt issuance still has a long way to go, but Sokol said it is not as easy as just labeling a bond as sustainable.

Unlike the majority of debt issuance that is generally labeled for general corporate purposes or capital spending, ESG debt requires use of purpose disclosures that typically includes ongoing disclosures to help track the proceeds.

“With green bonds, they will tell you the project that the money is for,” Sokol said. “It often includes more frequent reporting and the reporting is sometimes very granular.”

Latest News

SEC charges Chicago-based investment adviser with overbilling clients more than $2.5M in fees
SEC charges Chicago-based investment adviser with overbilling clients more than $2.5M in fees

Eliseo Prisno, a former Merrill advisor, allegedly collected unapproved fees from Filipino clients by secretly accessing their accounts at two separate brokerages.

Apella Wealth comes to Washington with Independence Wealth Advisors
Apella Wealth comes to Washington with Independence Wealth Advisors

The Harford, Connecticut-based RIA is expanding into a new market in the mid-Atlantic region while crossing another billion-dollar milestone.

Citi's Sieg sees rich clients pivoting from US to UK
Citi's Sieg sees rich clients pivoting from US to UK

The Wall Street giant's global wealth head says affluent clients are shifting away from America amid growing fallout from President Donald Trump's hardline politics.

US employment report reactions: Overall better than expected, but concerns with underlying data
US employment report reactions: Overall better than expected, but concerns with underlying data

Chief economists, advisors, and chief investment officers share their reactions to the June US employment report.

Creative Planning's Peter Mallouk slams 'offensive' congressional stock trading
Creative Planning's Peter Mallouk slams 'offensive' congressional stock trading

"This shouldn’t be hard to ban, but neither party will do it. So offensive to the people they serve," RIA titan Peter Mallouk said in a post that referenced Nancy Pelosi's reported stock gains.

SPONSORED How advisors can build for high-net-worth complexity

Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.