The following article is published in collaboration with IFR Asia.

    Food delivery companies in China are giving doctors free rides. Distilleries in India are making hand sanitiser. Banks in Hong Kong are allowing customers to pause loan repayments. Across Asia Pacific, businesses are re-tooling their operations to meet new needs arising from the Covid-19 pandemic, closing the gap between business and social responsibility.

    Capital markets, too, are showing their ability to support the response to the crisis through the issuance of social bonds, which finance positive social outcomes. According to data from HSBC, social bonds accounted for 5 per cent of total Asia Pacific issuance of Green, Social and Sustainability (GSS) bonds in the whole of 2019, but this had risen to 41 per cent by April 2020 because of the market’s response to Covid-19.

    Having lagged behind Europe and the US in the early days of the green bond market, Asia Pacific is leading the way as social bonds come into their own. In February, Bank of China’s Macau branch sold USD638 million-equivalent of senior social bonds in the first issuance globally to address the impact of Covid-19. Its proceeds funded loans to small and medium-sized enterprises in Macau that were affected by the fallout from the virus.

    Kookmin Bank in late April raised USD500 million in South Korea’s first public offering of Covid-19 social bonds, to support virus-hit SMEs, small offices and home businesses. Some issuers have chosen not to apply the formal label. The Republic of Indonesia listed the response to Covid-19 in its use of proceeds when it raised USD4.3 billion of long-term funding in April.

    The recent surge of social bond issuance to fund pandemic relief measures has confirmed their value for issuers and investors looking to align their activities with environmental, social and governance (ESG) considerations.

    “The GSS bond market has grown exponentially in recent years and, in 2020, social bonds are taking a growing share of that growing market,” said Jonathan Drew, managing director, sustainable finance, real assets and structured finance, Asia Pacific at HSBC. “We are increasingly seeing sovereigns, multilaterals and banks raise funding for the specific purpose of alleviating the impact of the pandemic.”

    “As the economic and social impact intensifies with the pandemic’s spread, social bonds will be a critical weapon in containing its fallout and delivering economic support to businesses, societies and people affected by this crisis,” said Drew.

    Global shift

    With societies around the world attaching greater priority to environmental, social and ethical issues, demand for ESG investment strategies is growing. Last year, ESG-focused funds pulled in around USD70 billion of new capital, while conventional equity funds suffered USD200 billion of outflows, according to data from EPFR. More investors may be encouraged by recent evidence that the securities of issuers with higher ESG scores outperform the market as a whole, even under highly volatile conditions.

    Luying Gan, head of sustainable bonds, Asia Pacific at HSBC, said social bonds help meet growing demand for assets from ESG investors: “They allow investors to make an impact in addition to a financial return and a chance to diversify their portfolios.”

    The burgeoning ESG investment industry has developed its own standards. Notably, institutional investors with a collective USD86 trillion under management at the end of 2019 adhere to the United Nations-supported Principles for Responsible Investment (PRI), which attracted a 26 per cent increase in signatories in the year to the end of March.

    It is also supported by a thriving ESG ratings industry, which has emerged as an influential factor for asset allocation alongside investment research and credit ratings. Indeed, ESG issues are becoming an important part of credit analysis itself: Moody’s said in April that ESG risks were a material credit consideration in 33 per cent of its ratings actions for private sector issuers in 2019.


    Asia’s social bond market is being shaped by national guidelines in the region as well as international standards.

    Chinese issuers have responded to guidelines for Covid bonds that the People’s Bank of China issued in March, encouraging companies to tap the capital markets to fund their response to the outbreak.

    In the global markets, the International Capital Market Association (ICMA) introduced social bond principles in 2018 to improve standardisation across the industry. Social bonds must fit social project categories, be aimed at a target population and achieve positive social outcomes. Similar to ICMA’s green bond framework, the association recommends follow-up reporting on the use of proceeds and a second opinion to verify the social benefits of the projects.

    The Asian Development Bank (ADB) was among the early movers in using capital markets to finance social good, although it did not use the social bond label and termed its issuances “theme bonds” instead.

    “Our theme bonds highlight specific areas of the ADB's operations. Such themes have included water, gender and health of which we have issued over USD2.7 billion since 2010,” said Pierre Van Peteghem, ADB treasurer. “These are in keeping with our mandate to achieve a prosperous, inclusive, resilient and sustainable Asia and the Pacific, while sustaining our efforts to eradicate extreme poverty.”

    Common goals

    The Covid-19 crisis may also be helping bring social bond standards into harmony, though, by making it simpler to quantify the social impacts that they finance.

    Fiona Reynolds, CEO of the London-based PRI, said metrics for social bonds had been more subjective than those for green bonds in the past. “But that subjectivity, which has been used to evaluate the merits of projects according to social impact, becomes more ‘objective’ as the scale of the fallout from Covid-19 skyrockets and the hardship intensifies across all sectors of society, from pressing immediate Covid-19 health needs – PPE gear and ventilators for example – to the loss of income and impacts on mental health,” she added.

    The scale of government-led efforts to ease the social consequences of Covid-19 around Asia point towards continuing growth in social bond issuance from the region. HSBC, which co-wrote the ICMA guidelines for the asset class, has been heavily involved as the global social bond market took off in 2020, leading eight social bonds globally totalling about USD7 billion.

    For the remarkable growth in social bond issuance to continue, issuers and their banks will need to ensure that deals provide real transparency, said Gan at HSBC. “We are very focused on structuring robust transactions which enable investors to assess issuance and its social benefits against their own standards, criteria or values, and hence to deliver great outcomes for issuers.”

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