Green, Social and Sustainability Bonds in the Context of COVID-19
Following the successful launch of the LGX Academy in May, sustainable finance experts and LGX Academy lecturers, Paul Chahine and Benoit Pauly, brought their virtual classroom to the homes of over 200 participants for an inaugural webinar addressing the Green, Social and Sustainability (GSS) Bond Market in the aftermath of COVID-19.
Leading the Way in Sustainable Finance Education
The LGX Academy offers tailor-made lectures on a broad range of topics linked to sustainable finance, thereby allowing participants to enrich their knowledge in this field and gain a deeper understanding of sustainable finance market practices.
Due to the impact of COVID-19, the LGX Academy team has moved their classroom to the virtual space to allow participants from all over the world to gain an in-depth knowledge of the latest trends in sustainable finance.
The Rise of Sustainable Finance
Since the world’s first Green Bond was listed by the European Investment Bank (EIB) on LuxSE in 2007, the Green Bond market has grown exponentially. In the 13 years since the idea of a greener economy emerged, the market has become a multi-billion Euro industry that has expanded to include Social and Sustainability bonds, among numerous other offshoots of securities designed to support the growth of a more sustainable and inclusive economy that places the environment and human well-being at the forefront of its mission. In 2019 alone, new Green Bond Issuance increased by more than 50% compared with the previous year.
Social Bonds Center Stage
The COVID-19 pandemic has brought the “S” of ESG to the fore. Since the pandemic hit, there has been a steep increase in Social Bond issuance. The so-called COVID-19 response bonds are issued to mitigate the massive social and economic consequences of the crisis in areas such as healthcare, education, social housing and food security. The ongoing recovery efforts require significant financing, and sustainable finance instruments such as Social Bonds ensure that the money invested contributes to creating a positive societal impact in addition to generating a financial return for investors.
From April to June 2020, COVID-19 response bonds representing more than USD 22 billion were listed on the Luxembourg Stock Exchange. It is also interesting to note the great variety of issuers of recent Social Bonds; in addition to multilateral development banks, corporate and financial institutions have turned to this debt instrument in the wake of the crisis.
Social Bonds are not a new phenomenon, although they are less known than their Green counterparts. Lecturer Paul Chahine, a climate finance expert and LGX Sustainability Research Manager, went into great detail on what role COVID-19 may play for the future of the Social Bond Market:
“Social-themed bonds existed before 2017. However, labelled Social Bonds are relatively new to the market and followed the publication of ICMA’s Social Bond Principles in 2017. 2020 is likely to be a turning point for Social Bonds with a broader range of issuers and increased awareness among investors. However, this sudden and rapid increase of Social issuance raises the risk of ‘social washing’. We need to use the lessons that we have learned over the last number of years to ensure that this change is truly meaningful,” commented Paul Chahine, during the webinar.
Transitioning to a Sustainable Economy
Green Bonds raise financing for green infrastructure projects such as solar parks, wind farms and green transportation. Social Bonds can fund social projects in both developed and developing countries as we prepare to enter a new world after COVID-19. Finally, Sustainability Bonds combine the social and environmental angle and can accelerate the transition to a sustainable economy.
“Significant funding will be needed to mitigate the impact of COVID-19, but we also need to remember that our fight against the specific consequences of this pandemic should not come at the price of climate and social challenges that will remain long after the pandemic is over,” concluded Paul Chahine.
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