Social bonds leapfrog green as Covid-19 crisis catalyses investor interest


Unédic issued its first Social Bond to a welcoming market that was undeterred by the lack of a government guarantee for France’s social security agency and enthused by a format that is rapidly becoming as popular as green bonds.

Finance has played a major role in the reaction of governments to the Covid-19 crisis, most recently with the issuing of Social Bonds to support employees and preserve jobs for those who have been stood down. 
Unédic, France’s social security agency, is the latest to issue these bonds, following on the coattails of the supranational Council of Europe Development Bank and Cassa Depositi e Prestiti, an agency for the Italian government, as the crisis accelerates investor interest in a format that was previously less popular than green bonds.

In June 2019, the Unédic Board came together to adapt its capital market funding to the Social Bond Principles. Structuring work had been ongoing in early 2020, when the pandemic spread started. The effect of the Covid-19 crisis on the French economy required massive response measures to protect and support companies and the workforce.
Jun DumolardChief financial officer at Unédic

"To finance the exceptional effort, it was only natural to answer to our investor support, built up over many years. In providing additional transparency and commitment to implementing the new Social Bond Framework Protect and support sustainable employment, Unédic demonstrates its contribution to the UN Sustainable Development Goals" explain Mr Dumolard.

Olivier Vion, Head of Public Sector Debt Capital Markets and Syndicate, said, “People realise that everything is meant to be social in the end. Green was good and social was second best. But the need is equal and, in fact, the same thing, which will make the social bond market more dynamic.”

The latest fundraising, a six-year, €4 billion from the French agency also marks the first time the agency has raised such a large amount of money without the support of a government guarantee. As an intrinsic part of the country’s social security system, the agency was able to secure interest from a large number of investors and commanded a hefty orderbook.
There was no haste in the creation of the new type of bond, with the agency’s plans merely accelerated by a crisis that has also served to publicise the cause.

"Before the crisis, there was probably more publicity and noise around green bonds versus social bonds but, since the crisis, the social bond aspect has really taken off," said Mr Vion.

While unemployment has been falling in France and Unédic was close to balancing its budget, the state of emergency triggered by Covid-19 has forced the agency to step up a funding programme for this year that it was expected to complete with ease. An agreement with the government that Unédic would lead the nation’s furlough scheme, with the state assisting with direct funding of its own, was accompanied by an impressively efficient increase in the size of its funding programme. 

With more to come, investors were impressed by the speed at which the issuer adjusted to the new need.

“Unédic will maintain the format in the long term and issue every future bond under the Social Bond Framework,” said Mr Dumolard.

The bond also included a provision whereby Unédic commits to segregate and invest any proceeds not instantly used in responsible investment funds, an initiative introduced to comfort dedicated socially responsible funds that were considering a participation in the new bond.

“They wanted to highlight the purpose of their mission in a more explicit way and also reach out to funds that have restrictions regarding investments and socially-responsible investing and make sure this was well understood by the market,” said Mr Vion.

The proceeds will help companies in France to preserve jobs in cases of economic or health crisis and neutralise periods of job loss through the contribution to supplemental retirement regimes. The broad, replacement income protection covers the vagaries of the job market, such as dismissals, unemployment, decreases in activity, precarious employment contracts and is available for those with short-term or part-time contracts.

The funds can also be used to help with professional qualifications and skills as well as entrepreneurial projects or career changes.

Firstly, it was important for investors to know the use of proceeds; secondly, there are investors in the very high grade end of the market who prefer the safety of agencies over corporates; and, thirdly, in the rates market, there is always some kind of relative value, which also had an effect on investor appetite. But it is difficult to say that any one of these factors was the main attraction: it was probably a combination of two or all three.
Olivier VionHead of Public Sector Debt Capital Markets and Syndicate