Article is an extract from Heike Reichelt’s video for the Unlocking Investment and Finance in Emerging Markets and Developing Economies (EMDEs)
It’s great to be part of this training on mobilizing finance for development I had the investor relations a new products team in the World Bank treasures capital markets department and I’ll be sharing my thoughts on investor trends and sustainable finance from a capital markets angle. So let me tell you more about what we do in the world bank treasury and capital markets team as context from my perspective we manage the capital markets funding programs for the World Bank officially called international bank for reconstruction and development or IBRD and for IDA a new issue or in the markets the international development association so the World Bank issues about forty to fifty billion in capital markets each year through hundreds of transactions in twenty plus currencies and has been issuing bonds for more than seventy years.
Each project refinance is designed to achieve a positive and sustainable development impact we are often referred to as the largest intentional impact investor in the world investors can help fund these impact investments in developing countries by buying our triple a rated liquid bonds IDA recently access the capital markets for the very first time in its sixty year history it will be a regular triple a rated bar when the market’s going forward with the growing funding program in April two thousand eighteen IDA made its historic debut in the capital markets issuing bonds for the very first time.
So I’d like to tell you the story of green bonds and how a group of Swedish investors who approached the World Bank in two thousand seven started what is now moving quickly towards a trillion dollar market and while it’s still small in terms of volume in the overall bond market context it really catalyze the change in investor behavior in the capital markets overall that continues and is helping channel more private sector flows towards sustainable development activities these investors started a market where investors look for the purpose of their investment it sounds so simple but it’s actually quite revolutionary in 2007 the World Bank was approached by a group of Swedish pension funds they came to us through their bank SCB asking us to develop a product that specifically supported climate focused activities had climate risks that they were looking to reduce.
But they wanted to go beyond that and find an investment that made a positive difference and as part of our efforts to help mobilize private sector financing for climate activities we worked with them to create the liquid and tradable product that was dedicated to a specific purpose addressing climate change which is the defining challenge of our generation and it affects all of our member countries so from a credit and financial risk perspective there’s really no difference with other bonds and green bonds in the market today are modeled after the first green bond the World Bank issued and follow a standardized process described by the green bond principles the process has been adopted and adapted by others based on their specific situation and the key steps of the process include special reporting.
We have social and environmental outcome indicators for every project and report on the positive expected climate and other impacts and we report on each project supported by green bond proceeds through our website where investors can find a summary of every project and drill down to the very detail project documents and we also have an impact report the game changer here is really the transparency and investor interest in the purpose of finance and providing information in a transparent way is key for making investors have the information they need to make decisions on which bond they want to support. Before green bonds focused only on the financial returns now it’s much more than that.
Green bonds really catalyzed a change in investor behavior towards asking for information to support their sustainable investing approaches and the dialogue we have with investors has completely changed. We’re seeing more and more interest in the purpose of finance. World Bank bonds are an attractive way for investors to achieve financial goals and support a social purpose.
So there’s no direct link between their investment and a particular project but they can see the types of projects that we finance and we show them the impact and we’re expanding this now to the sustainable development goals so that we can go beyond green and recognize that the opportunities for investors to support social aspects are also there so we’re going beyond green also has a social angle but looking at this system as development goals has a broader view so that’s why we are supporting and raising awareness for other sustainable development goals like gender education oceans And from many bond investor bonds are an entry point in investing for impact.
So you continue to provide opportunities for fixed income impact investing including transactions that highlight the system environment they recognize that their portfolio cause unless the environmental impact themes like climate education gender health clean water and sanitation and oceans. And this is not just for World Bank bonds are reliable bonds. It’s really changing investor behaviors overall. So our partnership with market participants is the corner stone of our strategy to deliver innovations that build sustainable capital markets.
So let me spend a little bit of time talking about partnerships by giving some examples of initiatives involved in because without genuine collaboration and working together in networks we won’t be able to achieve sustainable development goals.
So that is why partnerships is actually its own SDG number seventeen. So like many capital market participants we participate in several initiatives in a collaborative way and when working together towards building sustainable capital markets. So already mentioned the green bond principles they were model that the World Bank’s first green bond and have set the market standards for green bonds. They were coordinated by ICMA International Capital Markets Association with input from banks, investors, issuers and others. And let me expand the approach towards social bonds and sustainable bonds that cover both. And there are many other initiatives that are always on collaboration and working together including Network for the greening the financial system NGFS which is a group of central banks working together towards the common goal.
A big focus on all this is transparency and reporting and improving SDGS to help investors make in firm decisions. And a part of those initiatives are partnering with investors to increase the availability of the data through research and supporting global initiatives as well. This includes working with pension funds such as the world’s largest pension fund the Japanese Government’s pension investment fund GPIF that has one point four trillion dollars under management and the world’s largest black rock with six trillion under management. The work with blackrock provides data for their sovereign system and for bond index. We also work with investors to facilitate the use of the SDGs as a reporting framework for the impact and to develop investor’s products in market in SDGs.
An example is our collaboration with UBSC management and also working with sovereigns to facilitate dialogue between the sovereign issues and the investors to help respond to investors to information’s about how sovereigns are working towards for filling the Paris agreement commitments and whether there are contracts towards the have tracks towards achieving the development goals.
So this gave you a picture of how investor behavior in the capital markets has been changing. Shared with you from my perspective from the World Bank as a bond issue in the markets and to turn out more funds towards the sustainable investments transparency and collaboration is key. We will continue to prioritize strategic engagements for the investors and the other market participants to accelerate the capital markets to supply raw in mobilizing finance for development and achieving the SDGs.
Our key focus will be on partnering with investors whose strategies aim to achieve socio and financial returns including by using the USG criteria and as the development course as the framework for investment decisions. And we hope that you also take the opportunity in your work to contribute as well.