Europe Plans Over $100 Billion in Social Bonds to Fund Recovery

The European Union looks set to launch a foray into social bonds, a market that has already swelled four-fold this year to fund projects to help societies recover from the coronavirus.

The bloc’s first ever social bond sale is expected to come in the second half of October, as part of up to 100 billion euros ($118 billion) of debt to fund short term work schemes. The need to borrow to cope with the virus has made such debt the fastest-growing part of sustainable finance this year.

“We are obviously financing social expenditure — and therefore we will be in a position to issue bonds that will qualify as social bonds,” said Gert Jan Koopman, the EU Commission’s director-general for budget. “And this is significant given the volumes concerned. In this, we would probably nearly triple the EU social bonds markets through this program.”

Sales of debt for projects aimed at helping society are at a record $72 billion this year, four times the total in 2019, and taking cumulative total issuance to $117 billion. A pair of French state agencies have become the biggest borrowers so far.

The EU has mandated Barclays Plc, Deutsche Bank AG, DZ Bank AG and HSBC Holdings Plc to hold a call Wednesday with investors on the issuance plans, under its so-called “Support to mitigate Unemployment Risks in an Emergency” (SURE) program. In total it plans a 750-billion-euro pandemic recovery fund, with another big chunk coming from its first green bonds.

Koopman told a webinar with pension investor APG on Tuesday that he sees global buyers flocking in, with “pronounced” market interest and funds keen on the development of a bond curve. He couldn’t be specific on the maturity of the debt but said financing will be repaid over 30 years.

The assets should have appeal beyond specialist funds, according to Mitch Reznick, head of sustainable fixed income at Hermes Fund Managers Ltd.

“Issuance of this scale in the context of the size of the sustainability-themed bond market — green bonds, social bonds, etc — is staggering,” Reznick said. “Managers of mainstream funds are looking for ways to strengthen the ESG credentials of those funds.”

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