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The World Bank has issued its first bond where the proceeds will be directly invested in climate change-related projects. The bond is the first product of a wider Bank effort, in collaboration with large institutional investors, to direct large-scale institutional money to tackling climate change.
The Bank has raised around $300 million in Swedish krona-denominated six-year bonds, sold by Swedish bank SEB to Scandinavian institutional investors. The money raised will be invested exclusively in technologies that reduce greenhouse gases, energy efficiency projects, reforestation or avoided deforestation projects, or to help developing countries adapt to the effects of climate change.
This was very much based on demand from key investors, Heike Reichelt, head of investor relations at the World Bank, told Environmental Finance . SEB has had very positive feedback we think there will be interest in other markets in Europe and maybe in the US.
Doris Herrera-Pol, the global head of capital markets in the World Bank treasury department, added that about two thirds of the bonds were sold to life insurance companies, with the remainder going to pension funds, with some but by no means all bought by their dedicated socially responsible investment (SRI) portfolios.
Until now, the proceeds of all World Bank bonds including a handful whose returns are linked to environmental equity indexes or carbon credits went into a general pot. However, a spokesman said that SRI investors had wanted to ensure that their investments were directed towards climate change projects.
This allows us to expand our financing for climate change by tapping into a hitherto closed pool of capital, he added.
Herrara-Pol said that, as well as the bond’s environmental benefits, the bond investors were also looking for high-quality assets that paid commercial returns. The triple A-rated bonds will pay a coupon 0.25% above Swedish government bond rates.
Meanwhile, Reichelt confirmed that the World Bank is in the very early stages of exploring ways to develop products that allow institutional investors to provide large-scale financing to address climate change.
Institutional investors have complained that, while there are opportunities to invest in solutions to climate change at the venture capital or private equity level, there is a dearth of products into which they can easily direct tens or hundreds of millions of dollars of investment.
Reichelt confirmed that Kenneth Lay, treasurer of the World Bank, has been in discussions with leading investors on the issue, but declined to name individual institutions.
We’re hoping to get a discussion going with major investors that focuses on each asset class in their allocation to identify potential opportunities that would provide financing for climate change activities, she said.
