The social dimension

The sustainable-finance market is primarily still a green-finance market – focused mainly on environmental projects and outcomes. Social finance is a relatively small segment but many market participants have hopes for growth.

DAVISON Is there scope for more issuance of social-linked products outside the government sector, where there seems to be a more natural alignment of purpose between issuer and instrument?

PATRICK I disagree that social does not have the same economic rationale as green does. There are many instances where the economic rationale is just as prevalent, if not more so, in the social space, and certainly it can be easier to measure the impact created. For those investors seeking to align their portfolios with a positive-impact world, there is a compelling rationale for social issuance.

JENKINS We already see it in the sustainability-linked-loan space, where there is clear opportunity, alongside environmental KPIs, to focus on social metrics – indigenous employment, health and safety, improving the diversity of workplaces, education levels, and so on.

It is important to find the material risk issues that are relevant to the specific company, and we will first see this coming through from the loan market.

Over time, it will progress into the sustainability-linked bond space. But it is true that there is only a small amount of sustainability-linked bonds out in the market so far.

Over time, as the metrics become better understood and reporting about tracking develops, we will see more in the social space. But at the moment most focus is on emissions reduction.

We have seen a huge pivot toward social throughout the course of the COVID-19 pandemic, though. It is certainly not forgotten. Frequent issuers are now, on the whole, looking more broadly at the sustainability theme – not just green.

DAVISON We have not seen a lot of social-labelled deal flow in the Australian domestic market nor any COVID-19-linked issuance from Australian-based borrowers. Is it right to be focused on green-labelled issuance because it is the number one priority?

TAPLEY I think there is plenty of scope. If we did not have COVID-19, I think we would have seen a couple of social KPI-linked issuances in this market. One would have been gender equality and the other one would have been modern slavery – they were some big themes from 2019, and if it were not for COVID-19 I think we would have seen some more deals constructed around them.

COVID-19 brings those issues right to the forefront, though. If you look at loss-of-employment numbers in Australia, women are far more greatly affected than men. Meanwhile, the inequality that is being driven off the back of the pandemic includes looming issues around housing access, which was already an issue globally but is now more pertinent than ever. Watch this space heading into 2021 and 2022.

JENKINS As we start to emerge from the crisis it is clear that the impact of COVID-19 will not go away in a hurry.