Green Bonds Fade While Social Bonds Blaze

With that caveat in mind, we can say, pandemic bond issuances reached an equivalent €237bn.

Social and sustainable bonds favored over green bonds

With €237bn of pandemic bonds issued in the first six months of 2020, not all pandemic bonds fall under the category of social or sustainable bonds. Actually, only about 15% of these bonds have a social or sustainable framework. According to the ICMA, all types of issuers in debt capital markets can issue a social or sustainable bond related to Covid-19, as long as all the four core components of the Bond principles are addressed.

The issuance of sustainable bonds reached €34bn in 1H20 compared with €35bn for the full year 2020. Social bonds even marked a stronger surge with a supply that more than doubled. In the first six month 2020, issuers printed €34.3bn in social bonds compared with €15.4bn in 2019.

Social bonds issuance (in €bn equivalent)

Source: ING

Agencies and supranational were behind the social bonds’ strong progress.

Actually, in the first half of 2020, a number of these issuers did not approach the green bond market at all despite the fact they were regular issuers in the past few years. For entities such as the Korean Development Bank, Instituto de Credito, the African Development Bank or the Caisse Française de Financement Local, their attention focussed mainly on the Covid-19 pandemic and the financing needs to mitigate its impact.

We estimate that about €8bn of social bonds were issued by entities usually active on the green bond market.

We believe that the social and sustainable bonds supply will continue its expansion in the second half of 2020 and maybe beyond as the pandemic is not yet under control.

The European Stability Mechanism announced it could provide up to €240bn in pandemic crisis credit lines, although we think that about €80bn is more realistic if not still on the high side. Green bonds issuance may lose some of its steam in 2020 but we think this is a temporary slowdown. Investments in renewables, electricity grids, electric cars, and charging stations, as well as the construction and renovation of buildings and infrastructure, will continue to be strongly supported by governments and corporates’ engagement towards the energy transition.

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