Investors have rallied to a wave of social-style bond issuance from supranationals aligned with the issuers’ role in the fight against the impact of the Covid-19 pandemic, providing at the same time a tonic for ailing fixed income markets. Neil Day explores the trend and the potential for such bonds.
November saw the inauguration of the SFIL green bond framework, with a covered bond from Caffil, as well as one of the sustainable projects it is helping finance. The group’s Philippe Mills and Sami Gotrane explain how green and social bond issuance reflect its public policy goals.
The broader sustainability strategies of green and social bond issuers and the impact of their issuance across a range of metrics are increasingly being focused on. Meanwhile, new varieties of sustainable bonds could yield benefits, but complicate the picture. Sustainabonds gathered leading public sector issuers and ESG-focused investors for a roundtable, hosted by SFIL, to discuss key developments.
The Royal Bank of Scotland Group issued the first bond from a UK financial institution aligned with the Social Bond Principles on 8 November, a €750m six year non-call five social bond with proceeds earmarked for SME lending in deprived parts of the UK.
DKB sold a four times subscribed €500m five year “blue” social Pfandbrief focused on water and waste water services on Wednesday, with the Eurosystem and SRI investors among those helping the German issuer achieve an “outstanding” deal, according to its head of funding and IR.
Landesbank Baden-Württemberg inaugurated a social bond framework on 19 September, bringing its total sustainable bond issuance including green bonds to €3.7bn with a €500m senior non-preferred trade. The debut is the first social bond to be assessed against new ISS-oekom ESG KPIs for their contribution to related SDGs.
Asset growth, EU sustainable finance initiatives and pricing benefits could all help green bond supply rise to meet the growing demands of investors, according to speakers at an LBBW conference on 1 March, where a broadening of issuance, particularly into social bonds, was called for.
Caffil sold the first French covered bond in either green or social format on Tuesday, a EUR1bn eight year healthcare deal that drew over EUR2.6bn of orders and marginally outperformed the most recent comparable supply, according to a lead, while Moody’s said the ESG move is credit positive.
Caffil is roadshowing a social bond that is set to be the first social or green covered bond from France, with the proceeds refinancing loans to public hospitals, and the group plans to follow up the debut with green covered bonds later this year and potentially social issuance from parent SFIL.
The development of the Social Bond Principles and a focus on the Sustainable Development Goals are among catalysts helping the social bond market grow in the slipstream of green bonds. Pioneering and future issuers and others shared their experiences and expectations with Sustainabonds for this timely roundtable.