Traders work on the floor of the Ghana Stock Exchange
1. Private investors support the financing of World Bank projects in developing countries.
Private capital raised through the sale of Sustainable Development Bonds in the global bond markets is used to support the financing of World Bank projects in developing countries. These bonds are issued by the International Bank for Reconstruction and Development (IBRD) – the founding institution of the World Bank Group. IBRD, known simply in the capital markets as World Bank, has been issuing bonds in the capital markets since 1947 and has raised more than $1 trillion. Raising funds from the private sector through bonds is at the core of the World Bank’s business model -- which relies on the World Bank’s triple-A credit rating to attract investors and using the proceeds to support the financing of World Bank projects in developing countries. The countries then repay the loans plus interest.
Today, with paid-in capital from its 189 members totaling $19 billion, the World Bank connects private investors to sustainable development through the sale of its bonds. This funding supports the financing of IBRD operations, which currently span about 60 countries and are focused on the World Bank Group’s twin goals of ending extreme poverty and promoting shared prosperity.
Commercial banks, pension funds, asset managers, official institutions and insurance companies are the largest buyers of World Bank Sustainable Development Bonds. These investors are increasingly focused on managing environmental, social, and governance (ESG) risks through their investments and are seeking ways to have positive impact.
"Raising funds from the private sector through bonds is at the core of the World Bank’s business model -- which relies on the World Bank’s triple-A credit rating to attract investors and using the proceeds to support the financing of World Bank projects in developing countries."
2. The World Bank is the largest issuer of sustainability bonds.
The World Bank launched the world’s first labeled green bond in 2008 to engage investors around the positive contribution the World Bank was making on climate change. This green bond responded to investors’ growing interest in climate change risk by providing a product that was simple and fit their portfolios. It ultimately became the standard for a market focused on increasing transparency and investing for impact. While the World Bank continues to issue green bonds, most are now labeled as Sustainable Development Bonds.
The Sustainable Development Bond label highlights how proceeds go to support the financing of projects with both green and social goals and emphasizes the holistic approach that the World Bank takes to mainstream climate change in all its operations, as explained in its Climate Change Action Plan 2021-2025. For example, 100% of all World Bank projects are screened for climate risk, and 95% of all IBRD projects last year had climate financing components, including in what is traditionally thought of as “social” sectors such as health and education.
The World Bank is the single largest issuer of so-called ‘Sustainability Bonds’. World Bank Sustainable Development Bonds are aligned with the Sustainability Bond Guidelines as published by the International Capital Markets Association. Sustainability-labeled bonds themselves have been growing by leaps and bounds as demand increases from private investors for products that provide information on how they are supporting sustainable activities. According to Bloomberg, these labeled investments have grown from $40 billion in 2019 to $70+ billion in 2020 -- and in the first three quarters of 2021, they have already reached over $140 billion. But the amount of labeled bonds is still a tiny percentage (less than 3%) of the overall bond market. There is great potential for growth as investors assess the entire bond market for sustainable investment opportunities that allow them to manage ESG risks and invest in products that have a positive impact on society.
"The Sustainable Development Bond label highlights how proceeds go to support the financing of projects with both green and social goals and emphasizes the holistic approach that the World Bank takes to mainstream climate change in all its operations."
3. World Bank impact reporting provides a model for financial markets.
As a pioneering issuer of green and sustainable bonds, the World Bank has led transformative change in capital markets. One such area has been reporting on positive impact. The World Bank collaborated with investors and other Multilateral Development Banks to establish the first “harmonized framework for green bond impact reporting” in March 2015. The World Bank has since expanded and adapted the concept for reporting on its Sustainable Development Bonds, explaining how all the funds raised through their sale support the Sustainable Development Goals (SDGs). In its latest impact report for investors, the World Bank collaborated with the Stockholm Environment Institution to develop a methodology to map projects to the 17 different SDGs. The tool applies automated text mining software to match each project to the SDG targets. The aim of this work is to explore methodologies that can be used to provide a lens through which investors can see indicative contributions of World Bank-financed projects to the SDGs and to share the preliminary results to support other issuers and investors in connecting project results or investments to the SDGs.
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