By Hanna Ziady, CNN Business
Updated: Sun, 20 Dec 2020 13:56:00 GMT
Source: CNN Business
Governments are borrowing vast sums of money to cushion the blow to their economies from the pandemic. That's given social bonds — which fund projects that address social issues such as unemployment or access to healthcare — a chance to shine.
What's happening: Social bonds have raised more than $163 billion this year, more than 10 times the $13 billion raised in 2019, according to a report from law firm Linklaters. The coronavirus pandemic has been the primary driver of the exponential growth in the asset class.
"Social bonds emerged as a useful tool in the fight against the pandemic by mitigating the socio-economic impact of the crisis," said Linklaters capital markets partner Richard O'Callaghan.
The European Union was the largest issuer of social bonds, raising $47.3 billion across five deals. Other major fundraisers included the Asian Development Bank, as well as CADES and UNEDIC, bodies that manage France's social security debt and unemployment insurance system respectively. The pair raised over $42 billion across 11 bonds.
Follow the money: At €17 billion ($20.8 billion), the European Commission's inaugural Covid-related social bond will go towards its SURE program, which is helping EU member states pay the wages of millions of workers in order to protect jobs.
Investor appetite for these bonds has been enormous, as a growing number of asset managers incorporate environmental, social and governance (ESG) considerations into their investment decisions.
The SURE transaction attracted more investor interest than any other bond in history, according to Linklaters, with demand reaching €233 billion ($285 billion) ---- nearly 14 times the amount the Commission aimed to raise.
It's not just governments getting in on the action. Citigroup raised $2.5 billion from a single debt sale in October to build affordable housing in the United States, the largest-ever social bond from a private sector player, according to the bank.
Social bonds take after their more established cousin: green bonds, which have existed for more than a decade and finance environmentally friendly projects combating pollution and climate change. These bonds raised $227.6 billion this year across more than 680 sales, a 21% increase on 2019, according to Linklaters.
Growing investor appetite for these assets is helping finance to take more of a leading role in supporting improved outcomes for people and the planet. But whether or not all this money actually does make the world a better place is difficult to assess.
See here: Even the European Union acknowledges that its ability to report on the impact made by funds allocated through the SURE program will depend largely on the "quality and granularity" of the information supplied by member states, over which it does not have full control.
"The very fact that 'social impact bonds' are now a serious (albeit still small) and seemingly permanent feature of the global capital markets means that the sector needs to get serious about defining what 'social' means and how best to measure it," Professor David Kinley, the chair in human rights law at the University of Sydney told me. "It's the outcome that we are ultimately interested in."
Looking ahead: Whether or not they function as promised, social bonds are here to stay. The European Commission's SURE program alone has scope to issue up to €100 billion ($123 billion) in social bonds.
And with the economic impact of the pandemic likely to linger, the problems these funds are meant to address won't disappear anytime soon. "I don't think we're going to see a fall back to the same 2019 levels [in 2021]," O'Callaghan said.
Could companies make vaccines compulsory?
Coronavirus vaccines give businesses battered by the pandemic hope that 2021 will improve their bottom lines.
Companies that have lost billions of dollars in revenue or weathered increased costs related to coronavirus restrictions are understandably keen to get back to operating at full steam. To do that, some are considering requiring their employees to take Covid-19 vaccines.
Wait, what? Almost three quarters of business leaders signaled an openness to vaccine mandates in a poll held at a virtual summit on Tuesday by the Yale Chief Executive Leadership Institute, reports my CNN Business colleague Matt Egan.
The debate over vaccine mandates comes as health authorities seek to reassure the public about the safety of jabs, which are in the early stages of being rolled out in several major economies, including the United States and Britain, following emergency use authorization by health authorities.
Details, details: The question at the Yale Summit didn't specify who the mandate would apply to and several CEOs indicated that they first wanted to see how early rounds of vaccinations go.
Still, making the vaccine a condition of employment could be controversial and will likely be met with legal challenge.
"There is some legal uncertainty whether you can mandate a vaccine under emergency use authorization," said Dorit Reiss, a law professor at the University of California, Hastings. "I suspect some employers will go ahead and mandate. It will be challenged and the courts could go either way."
Some firms may see a vaccine mandate as the best way to get their employees back onto factory floors or facing customers. David Gibbs, the CEO of Pizza Hut and Taco Bell owner Yum Brands, said at the Yale summit that it's something his company will look into although no decision has yet been made.
Worth remembering: While employers have the right to set workplace health and safety conditions, companies might need to grant exemptions to employees on medical or religious grounds, according to Reiss.
Monday: Tesla added to the S&P 500
Tuesday: CarMax earnings
Wednesday: US new home sales, consumer sentiment
Thursday: Initial jobless claims; US durable goods orders
Friday: US and European markets closed