As the rapid growth of green bonds demonstrates, many investors, businesses and policy makers recognize a connection between the future of finance and the future of the world. Green bonds raise funds for projects addressing environmental sustainability, while providing steady returns for investors. Globally, sales jumped from less than $50 billion in 2015 to an estimated $300 billion in 2020, according to The Wall Street Journal.footnote1 When it comes to solving global challenges, “The private sector is increasingly committed to the fight,” says Karen Fang, Managing Director, Global Head of Sustainable Finance at Bank of America.
And while environmental issues remain a major focus of environmental, social and governance (ESG) initiatives, the extraordinary events of 2020 have called on the power of private capital to address the “S” in ESG, Fang says. “2020 is the year social financing makes it on the map.” Building on their experience with green bonds, banks are expanding the use of ESG-related securities to address a broader range of challenges such as healthcare, education, social and racial inequality, affordable housing, as well as providing economic opportunity for disadvantaged communities.
Investing in the war on the coronavirus
Few issues today are more pressing than public health. To that end, Bank of America’s $1 billion corporate social bond will support companies testing, diagnosing and treating the coronavirus. It’s the first social bond issued by a U.S. commercial bank aimed directly at helping to stop the spread and impacts of the coronavirus.
“The billion dollars will provide loans to nonprofit hospitals, skilled nursing facilities, and manufacturers and suppliers of healthcare equipment, among others,” Fang says. From a financial perspective, the bond is designed to meet the needs of institutional investors who are themselves responding to a growing public demand for investments that align with ESG priorities. In creating and issuing the social bond within a few short months of the coronavirus, the bank drew on its experience as the world’s leading underwriter of green bonds, Fang says.
Solving for affordable housing and other community needs
Before the onset of the coronavirus, Bank of America has already leveraged social bonds as a way to advance important social and global change. In early 2019, the Bank issued a $500 million social bond—the first by any U.S. bank—to develop affordable housing for low- to moderate-income communities across the United States.
Affordable housing is one of 17 Sustainable Development Goals (SDGs) outlined by the United Nations—major challenges that will require global cooperation and a combination of public and private financing to properly address.
As success builds on success, this new generation of social bonds will inform future generations of ESG investments addressing hunger, poverty, clean water and sanitation, education and gender equality. And as the events of 2020 have made clear, innovative investment models will also be needed to address the unforeseen challenges yet to come.
Learn more about Bank of America’s commitment to applying its expertise and partnerships to helping solve some of the world’s most pressing issues.