Are 'social bonds' finance's answer to the chaos of Covid-19?

The pandemic has made inequality much worse, so healing divides will have to be part of any recovery

A municipal worker pushes a cart passing teenagers queueing outside a restaurant for free burgers offered during a promotional event in Bucharest, Romania, February 1. AP

During a pandemic, access to health care is a particularly acute concern. Even before Covid-19, the cost of getting sick was much higher in places where access was unequal, and for the most disadvantaged, those costs could push them into poverty. The inequality in access becomes much worse when hospitals and clinics are undersupplied and overburdened, as the Covid-19 pandemic has rendered them now.

Health policymakers think of the conditions in which people are born, grow and live their lives as "social determinants". They include the level of opportunity and resources people have to protect, improve and maintain their health. They can affect who is more likely to get sick and how badly, and what kind of care they are likely to afford or receive.

These social determinants are largely responsible for health inequities within populations, particularly affecting low- and middle-income individuals, people living in crowded housing conditions, ethnic minorities and senior citizens.

So being concerned about access to health care also means being concerned about social determinants, such as schooling, housing and employment prospects. Covid-19 has aggravated the structural inequities between the rich and the poor in many nations, leading to immediate demands for social justice.

As of April 2020, school closures due to the pandemic affected nearly 90 per cent of the global student population, according to Unesco. "Virtual learning" models have replaced classes in many countries. However, many do not have access to the tools necessary for remote learning. This is particularly salient for children from disadvantaged socioeconomic groups and developing economies, widening the socioeconomic gap.

Inequities in housing markets worldwide have deepened, too. Lockdown measures have left many poorer and moderate-income families facing housing hardships, including evictions or delayed rent or mortgage payments, and have left the homeless or those living in inadequate conditions more exposed.

A recently conducted survey by the Social Policy Institute at Washington University showed that many low and moderate-income households in the US, representing roughly 60 per cent of the population, face additional housing hardship such as evictions or delayed rent or mortgage payments. It is unsurprising that densely populated urban areas have experienced a majority of the global Covid-19 cases, often due to overcrowding and inequality.

The speed and severity at which the pandemic has spread has plunged the global economy into a sudden state of recession, representing the deepest contraction since the Second World War. Covid-19 measures have been particularly devastating for workers in the informal sector, which accounts for 62 per cent of the global workforce.

An estimated 1.6 out of 2 billion informal workers have lost their main source of income due to the pandemic. In the formal sector, Covid-19 measures have led to job losses in areas of the economy that most heavily rely on in-person interactions, including aviation, autos, leisure and retail. Widespread shutdowns, layoffs and furloughs have left a large number of seasonal and temporary individuals out of work.

Health policymakers think of conditions in which people are born, grow and live their lives as 'social determinants'.

The consequences of these inequities have resulted in the poorest populations having a much greater chance of dying from Covid-19 than the richest. According to a study by Imperial College and the World Health Organisation published in May 2020, the poorest quintile of the population in lower and middle income countries has a 32 per cent higher probability of dying from Covid-19 then the richest quintile due to handwashing access, occupation and hospital access. And so the demands to fix these issues will dominate social, political and economic agendas for years to come.

As some economies begin to rebound, we expect that the road to recovery will be long and uneven, with the worst-hit emerging markets recovering to pre-pandemic Gross Domestic Product levels only in 2023.

This has massive implications for unemployment and, ultimately, poverty in middle-income and poorer countries. As a result, governments in many of them will face increasing calls to provide social income protection for their citizens.

Some have already chosen a variety of approaches to help, such as using hotels for the homeless and enacting mortgage payment schemes for those who need it. Approved vaccines are promising, too, but they are only the first step toward a return to social and economic “normality”; equally critical is the availability and access to them.

Supply has raised several questions about priority access, with the World Health Organisation urging countries to ensure access is fair and based on a number of social factors.

There has been an increase in investment in social projects that address unemployment, income inequality and strains on housing, health care and education systems because of the pandemic.

On October 20, 2020, the EU issued a €17bn ($20.5bn) social bond – the second largest ever issued – the proceeds of which will fund the bloc’s emergency job-support programme.

The issuance was more than 13 times oversubscribed by investors, the EU said, indicating tremendous demand for socially minded investments. As of October, social bond issuance stood at $71.9 billion, nearly four times greater than in 2019.

We are already seeing that investors in the capital markets have an appetite for debt instruments dedicated to meeting needs for housing, education, health care and employment. In all likelihood, sustainable finance debt, especially social bonds, will continue to serve as a tool in the economic fight against Covid-19 and the social inequalities and justice issues that have proliferated as a result.

Lori Shapiro is a sustainable finance associate at S&P Global Ratings