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World Bank Sells Record $91M of Green Bonds Tied to “Ethical” Companies

Grayson_Lynn_COLORBy E. Lynn Grayson


The World Bank sold $91 million in green bonds tied to an index of "ethical" companies – its largest offering of green bonds linked to an equity index and the first offered to individual investors.

Green bonds were created to increase funding by accessing the $80 trillion bond market and expanding the investor base for climate-friendly projects worldwide. They are fixed income, liquid financial instruments that are easy to understand, and the funds green bonds raise are dedicated exclusively to climate-mitigation and adaption projects, and other environmentally beneficial activities. This provides investors an attractive investment proposition as well as an opportunity to support environmentally sound projects, according to the World Bank.

The World Bank Treasury issued its first green bond in 2008, at a time when investors didn't have liquid, fixed income investment options that specifically supported climate-focused and environmentally-friendly projects. The World Bank has since issued more than US$7 billion in green bonds in 17 currencies, including a new green growth bond linked to an equity index and designed for retail investors. Separately, the International Finance Corporation (IFC) has issued US$3.7 billion, including two US$1 billion green bond sales in 2013. Proceeds form World Bank and IFC green bonds are used to support renewable energy, energy efficiency, sustainable transportation and other low-carbon projects, as well as financing for forest and watershed management, and infrastructure to prevent climate-related flood damage and build climate resilience.

The two institutions – whose AAA/Aaa ratings provide security for investors and development mandate and safeguards provide assurance for the use of proceeds and impact – have helped pioneer the green bond market, expand the investor base, and raise awareness about the needs and opportunities for climate-friendly investment.

The latest securities, which don't pay a coupon, are linked to the performance of the Ethical Europe Equity Index, a group of European companies that have no involvement in weapons, gambling, tobacco or nuclear energy. The seven-year notes were sold in $100 denominations to individuals in Belgium and Luxembourg, according to a World Bank statement.

The Washington-based lender, founded in 1944 with the goal of aiding post-war reconstruction, issued its first debt securities in 1947 and has sold more than $7 billion of green bonds in 78 deals. Global issuance of the securities, which are used to fund environmentally friendly projects, rose to a record last year, with $32.6 billion sold through October 24, according to data compiled by Bloomberg. Pension funds that are required to invest in sustainable assets have helped to fuel demand, according to Bloomberg New Energy Finance.

The Climate Bonds Initiative (CBI) also recently reported that the green bond market saw it biggest year yet in 2014. CBI has reported that almost $37 billion worth of labeled green bonds were issued in 2014--this figure is consistent with estimates also released by Bloomberg New Energy Finance.

According to the World Bank, the fastest growing cities and developing countries face increasing financial challenge from climate change. The green bond is a climate friendly investment developed to provide much needed funding to address climate change related impacts, primarily by governmental entities.