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Add to Preferred SourcesThe phone call to the World Bank Treasury came out of the blue: in late 2007, a group of Swedish pension funds wanted to invest in projects that help the climate, but they did not know how to find these projects. But they knew where to turn and called on the World Bank to help. Less than a year later, the World Bank issued the first green bond—and with it, created a new way to connect financing from investors to climate projects.
Bonds are essentially an agreement where issuers borrow funds from investors and must repay investors at an agreed rate after a specified amount of time. Governments, companies and many other issue bonds to borrow money for projects. Issuing a bond was nothing new for the World Bank—it has been issuing bonds since 1947 to raise financing from the capital markets for its development projects. But the concept of a bond that is dedicated to a specific kind of project had not been tested before. The green bond turned out to be a history-making event that fundamentally changed the way investors, development experts, policymakers, and scientists work together.
In November 2008, the World Bank issued the green bond. The bond created the blueprint for today’s green bond market. It defined the criteria for projects eligible for green bond support, included CICERO as a second opinion provider, and added impact reporting as an integral part of the process. It also piloted a new model of collaboration among investors, banks, development agencies and scientists. Ultimately, it was the result of their commitment, perseverance, and drive to find a solution.
The World Bank green bond raised awareness for the challenges of climate change and demonstrated the potential for investors to support climate solutions through safe investments without giving up financial returns. It formed the basis for the Green Bond Principles coordinated by ICMA, the International Capital Markets Association. It highlighted the social value that bonds could create and the need for a sharper focus on transparency.
Since then, the World Bank has raised more than US$13 billion through almost 150 green bonds in 20 currencies for institutional and retail investors all over the globe.
At the end of the fiscal year 2018, there were 91 eligible projects and a total of US$15.4 billion in commitments. Of these commitments, US$8.5 billion in Green Bond proceeds were allocated and disbursed to support projects in 28 countries and another US$6.8 billion had yet to be disbursed.
As of June 30, 2018, Renewable Energy and Energy Efficiency and Clean Transportation projects represented the largest sectors in the Green Bond eligible project portfolio. Together, these sectors made up approximately 69 percent of the Green Bond commitments.
How do green bonds help tackle climate change?
Green bonds raise awareness for the challenges of climate change and demonstrate the potential for institutional investors to support climate-smart investments through liquid instruments without giving up financial returns.
“We need bold action on climate change,” said Kristalina Georgieva, World Bank Group Interim President and World Bank Chief Executive Officer. “It comes down to a simple choice: we continue business as usual and hope for the best. Or we act now and build a resilient future. Our generation may not be able to solve all the problems related to climate change, but we can do our part to leave a better planet for the next generation.”
Green bonds have changed investor behaviors: ten years later, investors are publishing their names and providing quotes when they buy green or other labeled bonds and are much more aware of their power to support initiatives with their investments.
Read and download the 10-Year Green Bond Impact Report
Original source: World Bank
Published on 18 March 2019