Financing the Covid-19 Health Response: Resource Allocation, Accountability & Social Bonds

By Edana Richardson & Aisling McMahon.

Adequate financing of healthcare infrastructure, supplies and personnel is a crucial element of pandemic preparedness. It is key to limiting the need for healthcare rationing, to achieving global health justice and ultimately to saving lives. In a Covid-19 context, issues have arisen around public sector obligations to provide funding for the pandemic response in the face of mounting national debt.  Reflecting this, the WHO has highlighted the need for ‘sufficient public funding to ensure a comprehensive response’ to Covid-19. A particular emphasis has been placed on the need to ensure the timely release of public funds to frontline health services and the need for accountability around expenditure. The significant financial demands caused by the pandemic have also led to a mobilisation of private sector finance to fund healthcare infrastructure.

One financial instrument that has seen a surge in usage during the Covid-19 pandemic is social and sustainability bonds (together these are referred to in this article as ‘social bonds’). Social bonds are debt securities that represent a loan made by investors to an issuer (which could be a government, multilateral agency or corporate entity). These instruments generally pay investors periodic returns during the life of the bond, with repayment of the investment at the end of the bond’s term. Social bonds are structured so that the money generated from the issue of the bonds (known as issue proceeds) is used to fund projects addressing identified social issues or to achieving positive social outcomes. Categories of projects that have been funded through the issue of social bonds include those providing access to essential services such as health services. Indeed, one of first social bonds was issued in 2006 by the International Finance Facility for Immunisation (IFFIm – a key component of Gavi’s capital structure) to raise funding for immunisation programmes and programmes of vaccine procurement. To date, IFFIm’s social bond issuances have raised over USD6 billion from investors to provide funding for Gavi’s programmes. In the Covid-19 context, issuances of social bonds have included those specifically designed to fund healthcare infrastructure and preparedness. For example, Bank of America issued USD1 billion worth of social bonds in May 2020 to fund lending to hospitals, nursing facilities and healthcare manufacturers as they tackle the pandemic, and the Republic of Indonesia issued USD4.3 billion worth of ‘pandemic’ bonds to partially fund its Covid-19 relief and recovery efforts.

Such bonds provide avenues to rapidly mobilise funds and to channel those funds towards international, national and corporate projects targeting social issues and outcomes, including healthcare services, related infrastructure and supplies. From a practical perspective, social bonds are a useful mechanism for generating large amounts of capital relatively quickly. However, using social bonds as a means of health financing also poses important ethical questions around the accountability of bond issuers’ decision-making that warrant greater scrutiny by the global health and bioethics community. Two key issues in particular arise in this context.

First, social bonds give rise to questions around the accountability of bond issuers for how specific ‘social’ issues and objectives – including those related to health – are chosen and disclosed in the bond offering documents. There is no unanimously agreed definition of a valid social issue or objective within the social bond market. This in turn means that bond issuers have scope and discretion to use the term ‘social’ broadly to cover a range of health initiatives, with limited external scrutiny over why certain health initiatives are chosen. This may have practical consequences. For example, if social bonds are offered to the market purporting to be used to alleviate the health impacts of Covid-19, this could attract investors who may otherwise have invested in, or donated to, funding the Covid-19 pandemic response by other means. Yet,  there is often limited scrutiny over the ‘appropriateness’ of the health issue chosen by the bond issuer or how it is framed within the bond disclosure.

Second, in a healthcare context questions of accountability arise in terms of how money raised by social bonds is ultimately allocated to meet the healthcare aims disclosed at the outset to investors. These healthcare aims could be disclosed in a broad, non-specific manner to give issuers wide scope to later demonstrate they ‘met’ their aims. There exists limited independent oversight of, and recourse against, issuers in their application and allocation of a social bond’s issue proceeds. Instead, where the individual social projects funded using a social bond’s issue proceeds do not align with an investor’s social priorities, an investor’s only recourse is often to simply sell their bonds. Thus, how issuers spend the money raised by an issuance of such bonds may not always be subject to rigorous post-issuance disclosure or scrutiny.

In short, social bonds have many advantages in generating finance to respond to the healthcare crises posed by Covid-19 and they have potential to be a positive development in the international financial markets. However, further consideration is needed around the role and accountability of bond issuers, as key decision-making actors within the social bond context. Despite the recent surge in the number of issuances of social bonds for Covid-19, the landscape for the use of social bonds within the health context remains in the early stages of development. As the number of social bond issuances continues to grow, in our view it is vital that the global health community considers issues of accountability, standardisation and transparency in the use of social bonds within the health context.

 

Authors: Edana Richardson and Aisling McMahon

Affiliations:  Maynooth University

Competing interests: Aisling McMahon is a member of Access to Medicines Ireland. However, the views represented  here are based on the authors’ own views and their research within the field.

Social media accounts of post authors: @AislingMMcMahon @edana_r @MaynoothLaw

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