Environmental, social, and governance (ESG) investing is gaining more traction, and the coronavirus pandemic only spurred that interest as opposed to stifling it. This, in turn, is helping to fuel a healthy appetite for social bonds.
According to a CNBC report, “new research shows the issuance of social bonds has reached record levels and more than quadrupled so far this year, as conscious investors combine profit and purpose to address rising inequalities created by the coronavirus.”
“Recent growth in social bond issuance indicates that the COVID-19 pandemic has not turned issuers’ or investors’ attention away from sustainable finance — rather, interest seems to be growing,” according to S&P Global Ratings.
What are social bonds exactly? They represent a type of debt in which investors can use as a platform to raise funds that effect social change, whether it’s saving the environment through clean energy use or facilitating more access to education. Whatever the ESG initiatives may be, social bonds provide an avenue for raising capital to fund these programs.
Given the challenges facing the world today following the coronavirus pandemic, S&P is forecasting that the rise in social bonds will continue to reach fever pitch in 2020. S&P notes that this growth contrasts the rest of the fixed income market were bond issuance is expected to see declines around 9%.
“Undoubtedly, much of this rapid growth can be attributed to the effect of the COVID-19 pandemic, which has accelerated issuance of social bonds to finance both public and private responses and create positive social outcomes, especially for target populations,” the firm said.
Investors who want ESG exposure via an ETF wrapper can take a look at the Xtrackers MSCI EAFE ESG Leaders Equity ETF (EASG). EASG seeks investment results that correspond generally to the performance of the MSCI EAFE ESG Leaders Index.
The fund will invest at least 80% of its total assets (but typically far more) in component securities (including depositary receipts in respect of such securities) of the underlying index. The underlying index is a capitalization-weighted index that provides exposure to companies with high ESG performance relative to their sector peers.
An additional fund to look at is the Xtrackers MSCI USA ESG Leaders Equity ETF (USSG), which has been a popular play for investors seeking exposure to socially responsible investments. USSG was developed in collaboration with Ilmarinen, Finland’s largest pension insurance company. The underlying MSCI USA ESG Leaders Index provides exposure to large- and medium-cap U.S. companies with high ESG performance relative to their sector peers.