The World Bank raises between US$10 billion and US$15 billion annually on the international capital markets for development projects around the world.
Now it's reaching out to a special segment of the market – investors with environmental and other social goals.
Private investors now can buy World Bank bonds through two European banks and also support green technology, environmentally friendly development, and anti-poverty programs.
October 24, 2007—World Bank Treasurer Kenneth Lay remembers when his financially conservative grandfather owned World Bank bonds.
In those days, the World Bank soft-pedaled the fact its lending portfolio consisted of exposure to poor countries, and its main mission was to alleviate poverty. Instead, it worked on building confidence in the kind of institution worthy of a coveted triple-A rating.
“It’s not too much of a stretch to say we downplayed what was actually done with the money,” says Lay. “We emphasized the fact we kept very large reserves and were essentially backed by wealthy country governments.”
Today, the World Bank’s approach to investors is very different.
The World Bank is reaching out to a rapidly growing segment of the investor community – the socially responsible investor—to offer opportunities of investing in development as part of the World Bank’s annual funding program.
The World Bank raises between US$10 billion and $15 billion annually through International Bank for Reconstruction and Development (IBRD) bonds launched in the international capital markets. IBRD bonds have been available through brokers or financial intermediaries active in the capital markets for the last 60 years. The bonds have funded some 600 projects in over 100 countries around the world in the last few years, says Lay.
Socially responsible or sustainable investing integrates social, environmental and other criteria into investment decisions. Such investors want to support companies and organizations aligned with their own personal beliefs or standards, or avoid investing in entities whose practices they disagree with. Many believe that incorporating environmental, social and governance criteria in their investment decisions will help them find better financial investment opportunities.
“People are beginning to pay attention to what use is going to be made of their money, and they’re prepared to assign value to that,” Lay says.
The trend toward sustainable investing holds true not just for equity investors, but also for bond investors, such as those who buy IBRD bonds, says Heike Reichelt, Head of Investor Relations and New Products for the World Bank Treasury.
In response, the World Bank has stepped up efforts especially in the last three years to deliver development messages to investors in Europe and Japan, she says.
The World Bank’s Treasury department has teamed up with other parts of the World Bank, especially the sustainable development network and communication and country units, to highlight environmental and development achievements in the Bank’s member countries, says Reichelt. And the World Bank also played a key role last year in launching bonds to fund immunizations in developing countries on behalf of the International Finance Facility for Immunization (IFFIm), for which it is the Treasury Manager.
“We’re beginning to monetize the World Bank’s good works,” says Lay.
Partnering with Banks and Investors
This fall, the World Bank partnered with two European banks to issue bonds designed to appeal to private investors who want to support green technology, environmentally friendly development, and anti-poverty programs, and earn a good return at the same time.
ABN-AMRO sold about 150 million euro of World Bank Eco 3Plus bonds within a month of their launch September 17. (See related story.)
The World Bank is also issuing 250 million euro in bonds through DekaBank to clients of the German Savings Banks Finance Group (Sparkassen-Finanzgruppe) to finance World Bank sustainable development projects. The one-year notes are available at 16,000 Sparkassen branches across Germany until November 2 and have a guaranteed coupon of 3.85 percent.
The World Bank teamed up with La Banque Postale, the French postal system, in 2005 to offer a new investment product for French retail investors to help fund, and have direct information on, the World Bank’s programs in developing countries.
The World Bank has a long history as a socially responsible investment in Japan, says World Bank Capital Markets Director Doris Herrera-Pol. Most recently, the World Bank launched the “World Supporter” fund, created by Nikko AM, in Tokyo in June this year. The fund offers Japanese investors an opportunity to participate in a diversified emerging market investment portfolio supporting the mission of the World Bank. Part of the management fees from fund transactions will also be donated to a development cause.
“In Japan, we are a staple among fixed income products for retail investors,” says Herrera-Pol. “And those retail investors in Japan have always considered the World Bank as a socially responsible investment.”
In a boost to the World Bank’s standing among socially responsible investors in Europe and North America, where the World Bank has endured criticism from interest groups, the influential Calvert, a leader in socially and environmentally responsible investing, decided in July to allow its socially screened products to buy World Bank bonds. The decision followed an extensive review of the World Bank’s policies and practices on human rights, Indigenous Peoples rights, and gender issues, according to Calvert.
“I was very impressed with the degree of due diligence and their open-mindedness,” says Lay. “Calvert has, I think, very properly taken a sophisticated look at the complexity and context in which we have to work.”
“These are people whose profession calls on them to make judgments about the public purposes for which we and many others who are participants in the financial markets conduct our business. And for that body of people whose profession it is to make those judgments to come to the conclusion we are aligned with them with respect to those public purposes, that’s a very important signaling. We look forward to carry forward the dialogue with Calvert and other SRIs on key issues of common concern.”
