A new weapon is gaining traction in the fight against the economic fallout of Covid-19: Debt sales designed to alleviate suffering.

Governments and companies in emerging markets have sold close to $16 billion of so-called social bonds so far this year, on pace to shatter last year’s total, according to data compiled by Bloomberg as of close on July 19. These bonds, with proceeds earmarked specifically for projects that address human needs—such as health, hunger and education—have already lured fresh investment to Chile and Ecuador, and soon, Ghana.

No nation fully dodged the societal side-effects of the pandemic, which erased jobs, increased poverty and exasperated inequality around the globe. Those pains have been made even worse by lopsided vaccination rollouts as the highest-income locales get immunized more than 30 times faster than those with the lowest. Such is the challenge and the opportunity presented by social debt. The notes are already starting to steal attention from green bonds, and have helped the total ESG market to top $3 trillion as investors seek out more responsible investments.

“We’re clearly seeing an increasing focus post-pandemic on employment generation, and on access to health care—all of which would be activities that could be packaged as proceeds within a social bond,” said Rahul Ghosh, managing director of ESG Outreach and research for Moody’s ESG Solutions.

It’s easy to see why leaders across the developing world are paying such close attention. The virus decimated local economies, underscoring demand for social programs and driving thousands to demonstrate. While idiosyncratic events typically spark protests, worsening inequality, food insecurity and social rights compound the problem—as seen recently in countries spanning South Africa, Cuba and Colombia. Social debt offers a possible solution, providing funds that can be used to address similar issues now, and in the future.

Social Bond Boom
This type of debt jumped on investors’ radars when the European Union smashed historical records for orderbook size in selling its first social bond last year, and the bloc has since gone on to become the world’s top issuer. In emerging markets, the most social sales of the year came from the Chilean government, according to data compiled by Bloomberg. Further debuts are now likely.

Benin became the first African nation to sell a social bond in international markets on Friday, raising money that will be used to broaden access to potable water in the nation of 12 million people. Strong demand for the sale of 500 million euros ($591 million)—investors placed orders for more than twice the amount—is expected to encourage others to come to market, too.

Ghana is already planning to sell social bonds to refinance debt spent on widening free secondary education. Others on the continent could follow as South Africa and Kenya are studying sustainable debt issuance.

Mexico sold its own ESG bond in early July linked to the U.N. Sustainable Development Goals, which include gender equality, zero hunger and clean water initiatives. Slovenia, meantime, wowed investors in late June with a sustainability note for either green or social spending, which was more than 10 times oversubscribed.

“Sovereigns are looking to undertake more social bonds in the wake of the Covid-19 pandemic,” Morgan Stanley strategists including Jaiparan Khurana wrote in a note last month. The other option gaining momentum is “sustainable bonds, which incorporate a combination of both green and social projects.”

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