The World Bank's extensive investor outreach work focusing on its Climate Change Action Plan played a significant role in the borrower setting a new size record for a 10-year US dollar benchmark from a supranational issuer.
A US$5bn sustainable development bond on October 27 amassed a final order book in excess of US$9.5bn, close to double the demand seen for its previous 10-year fixed-rate SDB in the currency.
“The diversity and depth of the investor base looked like what we see in our short-dated transactions,” said Andrea Dore, head of funding, World Bank Treasury.
“We could have printed more than US$5bn based on the quality of the order book. But, as usual, we wanted to make sure that we size the transaction correctly and felt for this tenor that was the appropriate size.”
All World Bank activities are screened for climate risk and in the last fiscal year 95% of its projects had a certain element of climate finance in them, according to Heike Reichelt, head of investor relations and sustainable finance, World Bank Treasury.
“We recently announced an initiative to engage with investors around the importance of mainstreaming climate in all activities. We have heard from the market that part of the momentum in this trade was based on all this outreach we have been doing with investors," she said.
“We have reached over 150 investors and bankers and have been explaining to them how the Climate Change Action Plan works and how we work with countries on this holistic approach, which includes the ‘whole of economy approach’ we are taking in our discussions with developing countries.”
The investor engagement has been interesting and energising, according to Reichelt.
"Investors we speak to largely still buy World Bank bonds because of the high credit, liquidity and other financial aspects of the bonds, but it is interesting for them to learn how the World Bank on its operations side is taking this holistic approach, including elements which they can adopt when reviewing their portfolios," she said.
"We hear that investors are starting with labels and the added transparency and then also speaking to issuers. Asking them how they approach sustainable finance overall, not just for labelled bonds. The concept of making sure climate is integrated in all decisions really resonates with them."
Green projects such as solar and wind farms are obvious examples of investments that mitigate climate risks but the scope of activities extends to less readily apparent projects.
"We are also financing schools and hospitals and other infrastructure, and 95% of it has climate embedded into it. That is things like putting solar panels on the roof of the school or including energy efficiency for hospitals," said Scott Cantor, senior financial officer, World Bank Treasury.
“Our operations side of the World Bank is ensuring that climate, not just today’s climate but tomorrow’s climate, is considered in all the decision-making processes, across all sectors. We have moved from green projects to what we consider ‘greening economies'."
This entails working with World Bank clients and governments they lend to in order to put in place green fiscal policy and green infrastructure, according to Cantor.
"It is about going beyond specific sectors traditionally associated with climate action, and including that green mentality into everything. The evolution and the trend we see with fixed income investors is in the direction of this holistic view and moving from using the labels as a starting point to now thinking about what the labels have brought to the market," he said.
"The transparency, the quest to understand the impact of your investment, and then to apply the same approach to everything that is not labelled. There is a whole universe where around 97.5% of the fixed income market is not labelled.”
Unfinished business
The World Bank operates on a different fiscal year to most issuers and it can often benefit at this time of the calendar year from the additional flexibility inherent in this approach, as many of its peers close in on, or have already hit, annual funding targets.
“We hope given the market dynamics that we will return to the market before the end of the [calendar] year. That doesn’t necessarily mean US dollars. We look across a broad spectrum of markets and currencies,” said Dore.
"For us, it is gratifying to engage with so many investors explaining not only about World Bank bonds but about our broader mandate, focusing on something that impacts us all – climate change issues. We will continue the campaign beyond COP26 as well, with our issuances highlighting climate change and climate issues."