“The performance of sustainability funds through Covid has been very strong, and this is giving additional conviction to investors,” said Venn Saltirov, portfolio manager in BlackRock’s Asia fixed income team. “Over the past six months we have already started seeing pricing differentials between sustainable instruments, particularly green bonds, and their conventional counterparts, and this is because of the more diversified investor base and greater resilience during downturns.” Investors have poured more money into sustainable credit funds this year, with fund flows to environmental, social and governance strategies showing significant growth. According to Barclays research, emerging market credit funds recorded outflows of around 2.5% this year to July, but the subset of ESG funds in EM credit have seen inflows of 15%. Similarly, flows to euro-denominated corporate credit funds were flat, but ESG inflows reached 24%. “There are very clear technical factors supporting ESG issuance in the right format,” said Atul Jhavar, head of green and sustainable capital markets for Asia Pacific at Barclays. “This is tremendous liquidity that issuers can take advantage of in their deals.” Sustainable bonds had a record three months in the second quarter of 2020 with total issuance approaching US$131bn, according to Refinitiv data – more than double the previous quarter. Total issuance worldwide reached US$194.5bn in the first half of 2020, up 47% from the same period in 2019. Much of that burst in issuance can be attributed directly to the Covid-19 pandemic. Green bonds, as well as unlabelled issuance from sustainable companies, were roughly steady compared to last year, but sales of social and sustainable bonds leapt as sovereigns, multilaterals and banks raised funds for Covid-19 relief and recovery efforts. “The social impact of Covid has been twofold. The first is medical, protecting people from the virus and treating those who are affected. The second is the impact on corporations and jobs. That clearly ties well with the concept of a social bond,” said Dominique Duval, head of sustainable banking for Asia Pacific at Credit Agricole. “This year we have seen 80bn (US$96bn) of issuance to cover the effects of Covid-19. Some are labelled as social bonds, such as Bank of China’s SME bonds from its Macau branch, and some as SDG bonds. For a social bond transaction, an external review from a third party and reporting are highly recommended in line with market standards. On top of that, some issuers have sold bonds without a social or sustainable label, but may use the proceeds for Covid recovery efforts.” Social bonds – which includes deals labelled as ‘Covid-relief’ bonds – reached US$44.8bn in the first half, according to Refinitiv data, more than double the whole of 2019. Social bonds accounted for almost one-quarter of the global sustainable bond market in the first half of 2020, compared to less than 5% during the first half of 2019. Sustainable bonds, which are aligned with the UN’s Sustainable Development Goals but may have been prompted by Covid-19 funding requirements, also jumped to US$56.7bn, more than double levels seen during the first half of 2019. “The sustainability concept has grown a lot wider than just looking at green projects. Awareness has grown quite considerably over the last four months, which is encouraging. Asia is behind our colleagues in Europe and the US but is certainly catching up,” said Augusto King, head of capital markets at MUFG Securities Asia. More issuers are showing an interest. Kaisa Group, a major Chinese property developer and a frequent borrower in the domestic and international markets, recently set up a sustainable financing framework, according to Ken Suen, co-chief financial officer. “From an issuer’s point of view, we always look at how to communica