Responding to COVID-19 through Social Bonds

In the space of four months since the first cases of COVID-19 were diagnosed in Wuhan, China, the virus has spread to 178 countries globally. As a consequence, nearly 3 billion people around the world are living with varying degrees of lockdown imposed by governments aiming to slow the spread of the contagion.   

The consequences are twofold: 

• The healthcare infrastructure of the countries with the most cases and casualties are currently overwhelmed.[1] Research by the World Health Organization (WHO) and others, have indicated that only 43% of the countries is prepared to respond adequately to the outbreak.[2]

• Social distancing and isolation have halted or slowed major segments of economies around the world. While essential services continue to function, many other activities have ceased to operate or scaled back significantly, threatening businesses of all sizes, which face not-yet measurable losses (financial and human capital) and raising the spectre of recession. 

Responding to the current crisis requires the involvement of a broad range of actors, including governments, central banks and capital markets (companies, investors), to foster the financing of activities that can help first to mitigate the effects of the pandemic, and secondly to assist businesses, especially SMEs, that are facing adverse economic impacts. 

Many governments and supra- governmental bodies are focussing on immediate relief financial packages such as subsidized loans, deferring loan repayment deadlines and wage subsidies.[3], [4], [5] The World Bank disclosed its measures to support affected countries through capacity building and financial support for the economy.[6]  

Several market players have already taken action to issue bonds and leverage the capital market to ensure a quick source of finances and liquidity: 

• The IFC issued two bonds, one targeting companies in emerging markets involved in the production and delivery of medical equipment and pharmaceuticals and one to support private companies and employees hurt by the current economic downturn[7]; 

• Nordic Investment Bank issued a “Response Bond” in Nordic and Baltic countries where the bank operations include lending to the public sector, financial sector and real economy sector[8]; 

• In China, 25 companies have so far issued ‘virus control’ bonds and 20 others intend to do so. Overall, 44% will be allocated to disease control, the manufacture of medical equipment, hospital construction and donations, with the rest going to refinancing[9];

• The African Development Bank Social Bond aims at lessening the severe economic and social impact on countries and companies in Africa’s group members. This includes the financing of access to health and essential goods, services and infrastructure.[10]

To help facilitate the issuance of social and/or sustainability bonds that aim to address the COVID-19 crisis, ICMA has published guidance that includes examples of COVID-19-related uses of proceeds, [11] indicating that such use of proceeds should generally target specific groups directly impacted by the virus outbreak, although they may also support a wider population affected by the economic crisis.[12]

Examples of the latter may include COVID-19 related-healthcare and medical research, investment into medical equipment, and specific projects to alleviate unemployment generated by the crisis.[13] 

Sustainalytics also aims to help facilitate social bond issuance in response to COVID-19 and has expanded its internal taxonomy to explicitly identify several potential uses of bond proceeds related to the virus. These fall into two main areas – healthcare and socio-economic impact mitigation – as outlined in the table below. This set of potential uses of proceeds is indicative and not exhaustive, and we anticipate that other possibilities will emerge. 

COVID-19-related Uses of Proceeds in Sustainalytics’ Taxonomy