The World Bank’s green bond issuance recently passed the $10bn milestone. Treasury capital markets director George Richardson explains to David Wigan how it is now spearheading other sustainable instruments.
The World Bank’s 189 member countries share a goal of tackling poverty and building shared prosperity. Since its inception alongside the International Monetary Fund in 1944, it has increased its balance sheet to $61bn of loans, grants and investments. To finance its activities, the Washington, DC-based bank issues about 500 to 600 bonds a year.
A key priority for the bank in recent years has been to promote environmental responsibility and sustainable development. In 2008 it was among the first issuers of green bonds, assisted by Nordic financial services group SEB. The notes proved a hit, and recently the bank passed an important milestone in having issued more than $10bn equivalent in green bonds through more than 130 transactions in 18 currencies.
The World Bank’s green bond programme is aligned with the institution’s Strategic Framework for Development and Climate Change, also launched in 2008, which sets out principles to help stimulate and co-ordinate public and private sector activity to combat climate change. That initiative was a precursor to the UN's Sustainable Development Goals (SDGs), a bold new agenda to end poverty by 2030, agreed by 193 countries in 2015.
The 17 SDGs recognise rising inequality and the enormous global disparities of opportunity, wealth and power, as well as environmental degradation and the risks posed by climate change. The goals include an end to poverty and hunger, quality education, decent work and economic growth, and responsible consumption and production.
In demand
Reflecting its ground-breaking work in kick-starting the green bond market, the World Bank this year launched a financial product that reflects the SDGs, with the aim of meeting rising demand from retail and institutional investors for products focused on development.
“We wanted something that was in the same style as the green bonds,” says George Richardson, the World Bank’s treasury capital markets director. “We worked with an index provider to design an equity-linked security that we felt would meet the needs of investors who wanted to earn a reasonable return from these markets and have credit exposure to an AAA rated issuer,” he adds.
Late in 2016, the bank sat down with index provider Solactive and sustainability research firm Vigeo Eiris. Those discussions led to a return on investment concept based on the stock market performance of companies brought together by the Solactive SDG World Index. The index includes 50 companies that meet the requirements of Vigeo Eiris’s Equitics scoring system, which measures the relevance of companies’ and organisations’ commitments, the efficiency of their managerial systems, their ability to manage risks, and their performance on a range of environmental, governance and social responsibility factors.
“The Vigeo Eiris filtering enabled us to identify companies that met the SDG goals and which were financially stable enough to work in an index-based product,” says Mr Richardson. “The premise here was that the investor will buy the bond because they take the view that the companies stand to benefit from their SDG commitments, which makes sense because we see evidence that companies that focus on those priorities perform better than those that don’t and are better run.”
Going live
Once the index was in place, the World Bank began working with BNP Paribas with a view to issuing a bond, and discussions last September led to joint conferences in December and further marketing in January and February. Eventually a decision was made to go ahead in March, with a zero-coupon 15-year euro-denominated security, on which returns were linked to the new index, and a 20-year euro-denominated bond with a fixed coupon of 1.2% for the first 10 years and an index-linked return in years 10 to 20.
“Given that this was a brand new type of bond, we did not specify how much we wanted to issue,” says Mr Richardson. “Instead we opened the books for a subscription period and were able to fill all of our orders.” BNP eventually sold €106.8m of the 15-year bonds and $56.8m of the 20-year bonds to institutional investors in France and Italy, which was in line with bank’s expectations. The bonds were based on the World Bank’s standard prospectus.
“When you launch a product you don’t expect to do a huge size first off, but just as we saw in the green bond initiative, we expect that this will set a precedent,” Mr Richardson says. “The index is out there now and we hope others will follow, and certainly we aim to continue to develop the market in new currencies and tenors.”
