There’s also a push by non-governmental organizations for the Paris Club, a group of officials from major lender countries, to consider relief for emerging economies if they can make their debt burden more sustainability-focused. Pakistan could be the first to take advantage, in a deal with bilateral creditors tying debt relief to the achievement of biodiversity goals.
Of course, it takes time to build the infrastructure needed for ESG bond sales, making it hard for countries to quickly join the wave. Brazil and Indonesia are among the nations that have shown interest in embracing a wider investor base through ESG mandates, with the latter having sold green debt and now exploring bonds tied to sustainable development goals.
For the growing breed of European- and U.S.-based ethical funds more used to focusing on developed rather than frontier markets, these new assets may meet the need for S in ESG, but also open up risks around governance. There’s a concern among some that countries could use lofty social promises to rope in money without following through.
Mexico’s sustainable bonds last year raised eyebrows among skeptics as there’s no enforcement mechanism to ensure the cash will be used with social considerations in mind.
More Money
Still, more funds keep pouring into ethical debt. The iShares JP Morgan ESG USD EM Bond UCITS ETF, dubbed EMSA, attracted more than $611 million in inflows last year, compared with about $329 million in all of 2019. Shares of the exchange-traded fund, which track the performance of a gauge of ESG bonds from the developing world, rose 5.1% over the past year, according to data compiled by Bloomberg as of close on July 16.
“We see green and to a lesser extent social bonds trade better in the secondary market given increased demand,” said Jens Nystedt, a money manager at EMSO Asset Management in New York.
JPMorgan Chase & Co., which is vying with BNP Paribas SA to be the top global underwriter of sustainable debt, has a Latin American pipeline including sovereign borrowers looking to issue social bonds.
“Covid-19 will bring more needs than people anticipated, even as Latin America is emerging from the pandemic slowly but surely,” Lisandro Miguens, head of Latin America debt capital markets at JPMorgan, said in an interview. “As a result of Covid-19, we could see more social bonds issuance as opposed to green bonds.”
—With assistance from Caleb Mutua.
This article was provided by Bloomberg News.