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Sustainable Finance Addresses Social Justice As COVID-19 Raises The Stakes


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Sustainable Finance Addresses Social Justice As COVID-19 Raises The Stakes

Early in the pandemic, the coronavirus was seen as the "great leveler," hitting rich and poor alike. Instead, it's become apparent that COVID-19 is the "great divider," aggravating the many structural inequities between richer and poorer nations and people--leading to demands for social justice.

This call is not new, but countries have only made commitments to address it in recent years. The UN's 17 Sustainable Development Goals, adopted by member states in 2015, aim to end poverty, protect the planet, and ensure prosperity for everyone by 2030. The goals include good health, gender equality, and access to affordable, safe housing and essential services, among others. In keeping with the SDGs, the Paris Agreement of 2015 acknowledges the need for a "just transition of the workforce and the creation of decent work and quality jobs" in combatting climate change.

The world has made some progress in the past few years in advancing these agendas, but COVID-19 is halting progress and threatening to reverse gains. This is showing up in diverging health outcomes and increasing global poverty rates, to name just two. It's also evident in the growing backlash against systemic racism and reports of police brutality, as seen in the Black Lives Matter movement in many countries, and, more recently, the End SARS protests in Nigeria (see "Why Corporations' Responses To George Floyd Protests Matter," published on July 23, 2020, and "Diversity And Inclusion As A Social Imperative," published on Aug. 3, 2020). The pandemic has become a health crisis that also has huge ramifications for social justice that will dominate social, political, and economic agendas for years to come.

Financial Markets Are Showing Greater Interest In Funding Social Projects

Interest in social justice issues by investors, and companies and nations issuing debt, has until recently been relatively slim, with social bond issuance totaling only 5% of the sustainable debt market in 2019 (see "A Pandemic-Driven Surge In Social Bond Issuance Shows The Sustainable Debt Market Is Evolving," published June 22, 2020). But that is changing rapidly because of the pandemic. S&P Global Ratings sees growing investor interest in funding social projects that address rising unemployment, income inequality, and strains on housing, health care, and education systems. Issuance of sustainable investments (including social bonds) to finance both public and private responses and create positive social outcomes, have accelerated. As of October, social bond issuance stood at US$71.9 billion, nearly four times greater than in 2019 (see chart 1). We project that social bond issuance could approach $100 billion this year, while total sustainable debt could hit a record $500 billion up from $341 billion in 2019.

Chart 1


Recent social bond issuance, mostly addressing socioeconomic equality and opportunity, housing, education, and health care, indicates that governments and investors are largely in tune with structural shifts in these sectors. On Oct. 20, 2020, the EU issued a €17 billion social bond, the second largest ever issued, proceeds of the which fund the union's SURE (Support to mitigate Unemployment Risks in an Emergency), job support program. The issuance was more than 13 times oversubscribed by investors, the EU said, indicating tremendous demand for socially minded investments. The increase in demand is likely to be met with greater supply from a wider range of issuers to fund a variety of projects--involving, for instance, access to safe and affordable housing, improvements to public health infrastructure, and employment or income generation--that will probably take a permanent spot in the capital markets.

Chart 2


Health And Other Social Inequities Are Inextricably Linked

The pandemic has put into stark relief the relationship between poor health outcomes and other social inequities. The conditions in which people are born, grow, live, work, and age act as "social determinants" linked to a lack of opportunity and a lack of resources to protect, improve, and maintain health. When taken together, social determinants are largely responsible for health inequities within populations, according to the World Health Organization. Vulnerable populations, which include low- and middle-income individuals, people living in crowded housing conditions, ethnic minorities, and senior citizens, are often prone to poor health outcomes given higher rates of existing, chronic illnesses and poor access to high-quality medical care. Each year, WHO says 15 million people in the world between the ages of 30 and 69 die from a noncommunicable disease, with more than 85% of these "premature" deaths occurring in low- and middle-income countries (LMICs). One reason is that hospitals and clinics in many LMICs often lack necessities like handwashing stations, sanitation, or proper hygienic equipment and supplies. The consequences of these health inequalities have become particularly pronounced during the pandemic, which has overburdened health systems, reducing access to already limited health care in many countries. The poorest populations have a much greater chance of dying from COVID-19 than the richest. According to an Imperial College and WHO study published in May 2020, the poorest quintile of the population in LMICs has a 32% higher probability of dying from COVID-19 then the richest quintile due to handwashing access, occupation, and hospital access.

Unequal access to health care in countries around the world also massively increases the cost of getting sick. Many people often seek out medical care only if they can pay for it, meaning they wait longer before getting treatment because of the possibility that health care costs could push them into poverty. In the U.S., for example, the Urban Institute has predicted that between April and December 2020, 10 million people will lose employer-sponsored health insurance due to the pandemic. A poll by NBC News and the Commonwealth Fund found that more than two-thirds of U.S. adults say their potential out-of-pocket costs would figure prominently in their decision to get care if they had coronavirus symptoms.

The pandemic is also revealing the scope of health inequities along socioeconomic and racial or ethnic lines and the toll they take on individuals and societies. In France, mortality rates were disproportionately higher for Africa- and Asia-born people than the France-born population during the first months of the pandemic, according to an Insee report published in July. In the U.S., Black Americans are dying from COVID-19 at two or more times the rate of white populations, according to figures compiled by the APM Research Lab. These findings show a clear and strong linkage between social determinants and health outcomes.

Chart 3


COVID-19 Deepens Disparities In Housing

Inequities in housing markets worldwide have deepened as well. Lockdown measures assume people have access to safe and secure housing to offer some protection against the pandemic. That leaves the homeless or those living in inadequate conditions woefully exposed. Therefore, it is unsurprising that densely populated urban areas have experienced 90% of global COVID-19 cases, according to the UN. These issues are particularly acute in developing countries. According to the World Bank, currently over 1 billion people worldwide living in slums and other informal settlements--where sheltering in place and social distancing is nearly impossible--face heightened infection risk. This is due to overcrowding and lack of access to public services including electricity, running water, and adequate sewage and sanitation systems. The risks are concentrated in Sub-Saharan Africa and East and Southeast Asia, which accounted for 23% and 36% of the global urban population living in slums in 2018, the UN says. Furthermore, poverty and marginalization intersect in slums and poor neighborhoods, perpetuating already existent forms of socioeconomic, political, and cultural inequality and making the virus more harmful in a "self-perpetuating negative spiral." The issues are not only limited to LMICs, however. In London, poorer inner boroughs have triple the per-capita infection rates of more affluent suburbs, due in part to poor existing health conditions and overcrowded housing, according to the U.K. Office for National Statistics.

Chart 4


The pandemic has also magnified housing affordability gaps and income inequality. A recently conducted survey by the Social Policy Institute at Washington University showed that many low- and moderate-income households in the U.S. (representing roughly 60% of the population) have been facing additional housing hardship such as evictions or delayed rent or mortgage payments. Hispanic/Latinx populations are particularly at risk of eviction in the U.S., as according to the study 20% of these homeowners did not pay their full mortgage--a rate more than double the entire sample. The study indicates that being a minority may magnify income disparities, illustrating the complex nature of social justice issues.

To provide housing or keep people in their homes, governments have chosen a variety of approaches. In developed cities such as Berlin and San Francisco, governments are using hotels and hostels to provide temporary housing for the homeless. Many countries have enacted mortgage payment schemes and bans on home repossessions for those who cannot afford to pay. While these measures may be adequate near-term solutions to the effects of COVID-19, they are not permanent solutions to underlying social justice issues.

Income Inequality Grows, Especially For Already Vulnerable Populations

Lower-income and women workers are being disproportionately hit by the huge economic shock related to the pandemic. The speed and severity at which the pandemic has spread around the world has plunged the global economy into a sudden state of recession. S&P Global forecasts the global economy will shrink by 4.1% this year, which would represent the deepest contraction since World War II.

Table 1

S&P Global Ratings' GDP Growth Forecasts
2019 2020 2021 2022 2023
U.S. 2.2 (4.0) 3.9 2.4 2.6
Eurozone 1.3 (7.4) 6.1 3.0 2.0
China 6.1 2.1 6.9 4.8 5.2
Japan 0.7 (5.4) 3.2 1.0 0.9
India 4.2 (9.0) 10.0 6.0 6.2
Brazil 1.1 (5.8) 3.5 3.0 2.9
World 2.8 (4.1) 5.3 3.8 4.0
Note: China’s number is for Q1 (quarter of greatest COVID-19 impact). Source: OECD, S&P Global economics.

COVID-19 measures have been devastating for workers in the informal sector, which accounts for 62% of the global workforce. Of the 2 billion informal workers globally, located mostly in developing economies, the International Labour Organisation estimates that 1.6 billion lost their main source of income due to lockdown measures. For these workers who already garner lower wages than those in the formal sector and have little savings, the World Bank estimates that COVID-19 could push upwards to 100 million people into extreme poverty in 2020. This represents the first increase in global extreme poverty since 1998, effectively reversing all progress made since 2017.

In the formal labor sector, S&P Global Ratings has found that COVID-19 measures have led to job losses that have been particularly pronounced in areas of the economy that most heavily rely on in-person interactions (see "People Power: COVID-19 Will Redefine Workforce Dynamics In The Post-Pandemic Era," published on June 4, 2020). Aviation, autos, leisure, and retail have scrambled to adapt in the face of elevated health and safety costs but muted customer demand. Many companies have resorted to widespread shutdowns, layoffs, and furloughs, leaving a large proportion of low-skilled workers, in particular, without income. They are also leaving more women without jobs because of their overrepresentation in retail and service sectors.

Chart 5


As some economies begin to rebound from the peak of the pandemic, we expect that the road to recovery will be long and uneven, with the worst-hit emerging markets--mostly in Latin America--recovering to pre-pandemic GDP levels only in 2023 (see chart 6). This has massive implications for unemployment and ultimately poverty in LMICs. As a result, we expect governments will face increasing calls to continue providing social income protection for their citizens.

Chart 6


Systemic Problems In Education Exposed

The vast closure of primary, secondary, and tertiary schools during lockdowns has also more clearly revealed and increased inequities. As of April 2020, school closures involved more than 1.4 billion children in 186 countries due to the pandemic or nearly 90% of the global student population, according to UNESCO. Countries have scrambled to properly educate their students. Many nations have relied on "virtual learning" models to replace in-person classes. However, according to the UN's Sustainable Development Goals Report 2020, globally nearly 500 million students do not have access to the tools necessary for remote learning. This is particularly salient for children from disadvantaged socioeconomic groups and developing economies. Many of India's 240 million schoolchildren, for instance, reportedly have not had access to a formal education setting for the last eight months nor are equipped for remote learning.

Chart 7


S&P Global Ratings views primary and secondary education as a basic and essential need for human development. Furthermore, in many communities, schools provide additional public and social services: they provide meals to reduce food insecurity, offer afterschool care and childcare, and provide communities with activities to help reduce juvenile delinquency. Therefore, any impediment to schools' ability to provide these services also widens the socioeconomic gap and threatens social equity.

Closing The Educational Gap Is An Investment In Human Capital

It's clear that the pandemic is hurting educational outcomes for a generation of students, especially those in lower-income groups. The longer education systems remain disrupted, the weaker student outcomes will be--including lower retention and graduation rates. This is likely to translate into lower productivity for decades. In the U.S. alone, McKinsey estimates GDP losses could be nearly USD$500 billion by 2040 if in-classroom instruction is delayed until the fall of 2021. However, correcting the issue will not be possible without significant investment. This past June, the World Bank approved a US$160 million Safe Schooling and Distance Education Project loan to the Republic of Turkey, with the explicit purpose of enhancing the capacity of the education system to provide e-learning equitably to school-age children. This represents the organization's first stand-alone, educational lending in response to COVID-19 and reveals the magnitude of capital needed to close the educational gap. We expect more efforts to fund shortfalls in education given the huge role it plays in human capital development. Such targeted finance has the potential to narrow the attainment gap between disadvantaged students and their peers, aggravated by the pandemic.

Funding A Just Recovery

Because the pandemic has so far been the great divider, governments are increasingly facing calls for a recovery that is a great leveler. COVID-19 has widened global gaps in health, housing, income, and education. Instead of growth at all cost, there are calls for equitable, sustainable growth that benefits all, including the most vulnerable populations. Part of the solution will be government programs that help shape a just recovery as well as greater support from a financial system that rallies around social issues. 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. We believe 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.

Related Research

S&P Global Ratings research
Other research
  • The Paris Agreement, United Nations, Dec. 12, 2015
  • European Commission issues first emission of EU SURE social bonds, Oct. 21, 2020
  • Progressing the Sustainable Development Goals through Health in All Policies, World Health Organization, Sept. 2017
  • Noncommunicable diseases, WHO, June 1, 2018
  • Coronavirus will have bigger impact on world's most disadvantaged and vulnerable, Imperial College London, May 13, 2020
  • The number of deaths rose twice as high for people born abroad as for those born in France during the Covid-19 health crisis, France's National Institute of Statistics and Economic Studies, July 7, 2020
  • WHO SAGE values framework for the allocation and prioritization of COVID-19 vaccination, Sept. 14, 2020
  • Vaccine bond sale raises $500m to fund immunisation programmes, Financial Times, October 2020
  • Policy Brief: COVID-19 in an Urban World, UN, July 2020
  • SDG 11: Make cities and human settlements inclusive, safe, resilient, and sustainable, UN Stats, 2018
  • Deaths involving COVID-19 by local area and socioeconomic deprivation: deaths occurring between 1 March and 31 July 2020, U.K. Office for National Statistics, Aug. 28, 2020
  • Impact of COVID-19 on violence against women and girls and service provision: UN Women rapid assessment and findings, 2020
  • Violence against women and girls: the shadow pandemic, UN Women, April 6, 2020
  • Housing hardships reach unprecedented heights during the COVID-19 pandemic, Brookings Institution, June 1, 2020
  • ILO Monitor: COVID-19 and the world of work, April 29, 2020
  • Projected poverty impacts of COVID-19 (coronavirus), The World Bank, June 8, 2020
  • International Tourist Numbers Could Fall 60-80% in 2020, UN World Tourism Organization, May 7, 2020
  • Education: From disruption to recovery, UNESCO, 2020
  • The Sustainable Development Goals Report, UN, 2020
  • DOE at a Glance, New York City Dept. of Education, 2020
  • Nearly 20K NYC Students Still Missing Promised iPads, The City, April 26, 2020
  • COVID-19 and student learning in the United States: The hurt could last a lifetime, McKinsey, June 1, 2020
  • Safe Schooling and Distance Education Project, Sept. 30, 2020

This report does not constitute a rating action.

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