“If 2020 was the year where the pandemic exposed the gaps of our social fabric and financial systems, then 2021 must be the year where we mend these gaps for the better” says Edris Boey, Head of ESG Research at Maitri Asset Management.
The market has got the message. The global sustainable debt market rocketed 29% to a record US $732 billion at the end of last year, driven by unprecedented interest and issuance in social bonds. Recent demand for these bonds has outpaced supply, driving new entrants such as JP Morgan Chase, and the Ford Foundation towards the sector.
Uncharacteristically, ASEAN has been lagging behind. The post-pandemic crossroads is the ideal point to pick up the pace.
The pandemic has taught us that social bonds have a place in society– Edris Boey
Head of ESG Research at Maitri Asset Management
Picking up pieces post-pandemic
The APAC market has emerged from the global health crisis with a healthy social conscience. Across the region, issuance of social bonds grew from US$ 20 billion in 2019, to around US $105 billion by October 2020.
Fuelled by the fallout from the pandemic, which intensified the need for affordable housing, basic infrastructure, and healthcare across emerging markets, these fast-growing players in the sustainable debt sector overtook their green-focused counterparts for the first time. Data from HSBC revealed that social bonds accounted for 41% of total APAC issuance of Green, Social and Sustainability bonds by April 2020, jumping from 5% in 2019.
Yet in the midst of this buzz, ASEAN has been lagging. By the end of 2020, there had only been a handful of ASEAN social bonds issued, and while COVID-19 spurred initiatives such as the Bank of the Philippines’ PHP21.5 billion (US$443 million) COVID Action Response Bond, a lack of understanding of social issues and little historical data on investment returns has contributed to insufficient investor demand across the region.
Initiatives such as the ASEAN Social Bond Standards, established in October 2018 will be pivotal in driving further change. Already they have been integral in guiding pioneering ASEAN social bonds – such as the 2017 US$ 8 million four-issue Women’s Livelihoods Bond issued by Singapore-based social company Impact Investment Exchange – and in providing much needed transparency in an opaque market.
Standards for social impact
Clear metrics have long seemed like the unattainable holy grail of ESG. Yet, while certain environmental frameworks are rising above the rest as recognized benchmarks for environmental impact, such as the Sustainability Accounting Standards Board (SASB), when it comes to the ‘S’, ESG needs standardization.
Currently the market relies heavily on self-regulation and non-binding principals, such as those from the International Capital Market Association.
“It’s a bit of a trust exercise in a sense”, says Simon Andrews, ESG Analyst for Bloomberg Intelligence. The current system “looks nice and pretty, but it’s not something that’s regulated”.
This ‘nice and pretty system’ is a vulnerable target for ‘social washing’: the use of funds towards self-labelled social projects, which don’t always deliver on impact. Data from S&P Global revealed that at the start of the pandemic, several issuers rolled out social bonds that went unreviewed by outside parties or voluntary guidelines. This lack of disclosure could be a potential concern for investors, who may refrain from piling in their full potential till greater transparency is available. It is also an open market for new solutions and standards to set the pace.
Social conscience in a socio-economic crisis
Last July, the UN warned that Southeast Asia was on the brink of a “socio-economic crisis“, as pandemic set poverty levels rising for the first time in two decades, and drove the region’s economy to contract by 0.4%. When it comes to investment in the post -pandemic community the time is now.
These funds are not just a way for investors to strengthen and diversify their portfolio, it is an opportunity for them to reshape their social infrastructure and redefine their relationship with philanthropy. And, even as rising climate-change concerns refuels interest in environmental bonds, social is here to stay.
“The pandemic has taught us that social bonds have a place in society”, says Boey. The sharp shock of the global health crisis was a global wake-up call for the region’s sustainable finance sector.
They’ll be rebuilding the next phase with their eyes wide open.