The bond issue responds to growing interest from investors, who wish to support climate change-related projects in developing countries
The green bonds will support the Bank’s climate action projects (both mitigation and adaptation)
The bond is an example of innovation the Bank is trying to encourage to stimulate public and private-sector financing for climate action
January 5, 2009—The World Bank recently launched its first “green bonds” designed to raise additional funding for projects or programs that support low-carbon activities in client countries.
In partnership with SEB, the World Bank raised approximately US$350 million via several key Scandinavian institutional investors. The bond issue responds to growing interest from sustainable or socially responsible institutional investors, as well as some individual investors, who wish to support climate change-related projects in developing countries.
The bond issue is one example of the kind of innovation the Bank is trying to encourage within its Strategic Framework for Development and Climate Change, endorsed by the Development Committee at the last Annual Meetings in October. One objective of the Framework is to help stimulate and coordinate new public and private-sector financing for climate action. The offering is the first time the Bank has offered bonds to raise funds identified to a specific program.
In a statement issued when the bonds were launched, President Robert Zoellick said “Tackling climate change is going to take immense resources that will only come from a well-orchestrated flow of public and private finance. This transaction is an important early effort to show one way in which this can be done.”
For its part, SEB President and CEO Annika Falkengren said “With this issue, we have been able to offer our clients a product through which they can accomplish three things: take a stand towards fighting global warming; support the World Bank and its members in their efforts to fight poverty; and secure a higher return than government securities by investing in the World Bank’s Aaa/AAA-rated bonds.”
The first issue of green bonds was denominated in Swedish kronor (SEK) for a total amount of SEK 2.325 billion and has a maturity of six years. At the time of issuance, the interest rate payable annually was 0.25 percent above Swedish government bond rates, for a yield to investors of 3.15% per annum. SEB is the sole lead manager and offered the bonds to investors through its distribution network.
“This new product is a special funding opportunity for the World Bank and investors since it supports climate change investments in our client countries,” said Doris Herrera-Pol, Director and Global Head of Capital Markets at the Bank. “We are very grateful to SEB and the investors for their interest and partnership, and to all those who have supported in finding and implementing a solution to respond to this increasing investor demand for ‘green’ investment products.”
Green bonds support mitigation and adaptation
The green bonds will support the Bank’s climate action projects (both mitigation and adaptation).
Examples of the types of mitigation projects supported would be:
Rehabilitation of power plants and transmission facilities to reduce greenhouse gas emissions;
Solar and wind installations;
Funding for new technologies that result in significant reductions in GHG emissions;
Greater efficiency in transportation, including fuel switching and mass transport;
Waste (methane emission) management and construction of energy efficient housing;
Carbon reduction through reforestation and avoided deforestation.
Examples of the types of adaptation projects supported by the bonds would be:
Protection against flooding (including reforestation and watershed management);
Food security improvement and stress-resilient crops (which will slow down deforestation);
Sustainable forest management and avoided deforestation.
A special “green account” to manage the funds
A special “green account” will be used for proceeds from green bonds. At the end of every quarter, funds will be deducted from this account and added to the World Bank's lending pool in an amount equal to that quarter's new, "green" disbursements to support eligible projects.
Warren Evans, Environment Director at the Bank, said “we’re delighted not only to see real investor interest in this new offering from our Treasury colleagues, but also to know that the expanded pool of available resources to support our work on climate change will allow us to do more and go faster in helping client countries move onto low-carbon development paths.”
For more information on the World Bank’s bonds, go here.