Companies large and small are running out of cash; governments are either printing money, teetering toward bankruptcy, or will soon be forced to make devastating cuts in social programs and staff. Even museums are considering selling works of art to stay afloat. No sector of society is immune to the ravages of COVID-19, and at times it appears impossible that any force, business or government, can lift us out of this crisis.
Investment firms including Morgan Stanley, however, have noticed an encouraging trend. At TriplePundit, we’ve long tracked environmental, social and governance (ESG) investment, as writers including Amy Brown and Tina Casey have been watching this development in the world of finance. And last month was one of the most audacious months for this small but surging niche within the world of finance.
According to Morgan Stanley, April witnessed a manic pace of ESG bond issuances. In terms of raw numbers, one’s gut reaction could be “meh” — $48.5 billion total. But that’s double the amount issued in March, and compared to April 2019, it’s a whopping 270 percent increase. And while the number of such bond issuances in April was just a small uptick from March, the average size of these bonds jumped up well over 150 percent.
Here’s another huge difference: While historically we keep referring to these investments as “ESG bonds,” for the most part they have trended heavily on the environmental side. But last month, bond issuers floated $12.4 billion social bonds, designed to address, naturally, social challenges, including any related to COVID-19.
In April 2019, no social bonds were issued whatsoever. Zero.
Even more telling: The evidence suggests that 2020 bond issuances were underwritten not out of any sense of desperation, but because they make sound investment sense. After all, we can’t rebuild until society has somewhat healed. Buyers are responding in kind.
“Despite record issuance, investor demand for these bonds was strong, as evidenced by oversubscribed deal books, and record issuances,” Morgan Stanley concluded in a recent report. “Five of the 10 COVID-linked bonds were reportedly oversubscribed.” Two of those were $1 billion deals across the pond in Europe.
One fear amongst the sustainerati is that the current economic catastrophe we are confronting means the corporate sustainability movement could fall by the wayside, the way many observers felt a decade ago during and after the Great Recession. But the evidence suggests, if anything, this pandemic shows that ESG-related challenges matter more now than ever.
“If you look at the ESG ETFs [exchange-traded funds] for both equities and bonds, many have held up better than a lot of their peers,” Jennifer Tonda of 280 CapMarkets said in an interview with InvestmentNews. “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.”
Bottom line: Investors have hardly taken their eyes off the ESG ball during this crisis. If anything, they are more laser focused on your company than ever before, as they watch how you are responding to COVID-19. And if you have a solid plan for emerging out of this crisis, buyers will take you seriously.
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Leon Kaye has written for 3p since 2010 and become executive editor in 2018. His previous work includes writing for the Guardian as well as other online and print publications. In addition, he's worked in sales executive roles within technology and financial research companies, as well as for a public relations firm, for which he consulted with one of the globe’s leading sustainability initiatives. Currently living in Central California, he’s traveled to 70-plus countries and has lived and worked in South Korea, the United Arab Emirates and Uruguay.
Leon’s an alum of Fresno State, the University of Maryland, Baltimore County and the University of Southern California's Marshall Business School. He enjoys traveling abroad as well as exploring California’s Central Coast and the Sierra Nevadas.