ESG investors cannot afford to sit on their laurels, however. Many are actively considering how they should be managing their funds in response to coronavirus.
This starts with existing holdings. The Principles of Responsible Investment has called on its members to showcase “flexibility in financial arrangements” to support companies. In this context one would expect ESG investors willing to support covenant waiver / amendment requests as well as liability management transactions (extensions of existing bonds).
It also stretches to new types of holdings. A recent success story in this regard has been the surge in coronavirus-response bonds, a derivative of the established social debt market. End of April, NatWest Markets helped French financial agency, BPI launch its inaugural €1.5billion 7-year EUR Coronavirus Response Bond, which attracted high quality investors with a final orderbook of EUR 3.3 billion. A few days later, CAFFIL issued a €1 billion 5-year EUR Coronavirus Social bond led managed by NatWest Markets to finance public hospitals in France with a 4.5x oversubscription rate. Such sizeable orderbooks reflect a desire from investors, particularly asset managers, to “do their part”. There are parallels here with the early days of the green bond market. Investors wanting to start “doing something” about climate change piled into the first generation of green bonds.
This strong investor sentiment could even extend into wholly new fund offerings. Some have called for coronavirus index funds: funds screening firms for their social response to external societal shocks, such as coronavirus, as well as their broader human capital and community policies. Inclusion in such a fund would be a “badge of honour”, like for instance the FTSE4Good.