Let me begin by thanking you all for making out time to participate in this important Investor Round Table on Sustainable Fixed Income Investing. My sincere gratitude for not only contributing to this research but also for being champions of sustainable investing as well as for your dedication to building a better world.
We are particularly grateful to Hiro Mizuno and the GPIF team for this important partnership. I must also commend the World Bank Group teams, World Bank Treasury, IFC Treasury, the MD/CFO’s Office, and the Finance, Competitiveness and Innovation Global Practice for their hard work since we embarked on this potentially transformative initiative in October 2017.
All your efforts have together, transformed Jim, our President’s idea into reality. It also underscores the significant progress we can make in creating a sustainable future when we partner with each other.
For us at the World Bank, our mission is anchored on sustainability because it is rooted on twin goals - end extreme poverty and boost shared prosperity. We bring our unique combination of financing, knowledge and experience to promote sustainability and to tackle complex challenges such as climate, forced migration, pandemics, and natural disasters. We leverage our long track record of supporting member countries globally and fostering partnerships with public and private sector to promote innovative and sustainable development solutions.
As you know, at the World Bank Treasury, we have pioneered the integration of Environment, Social and Governance (ESG) factors across our areas of responsibility. Notably, we are an asset owner and asset manager of almost USD 200 billion for more than 65 clients, an issuer that issues more than USD 50 billion per year, and we provide our clients with technical advisory services.
For example, we have had a responsible investment policy for our pension fund for many years and are a signatory to the Principles of Responsible Investing. Our policy is supported by beliefs that the consideration of ESG factors can add value to the investment process, and affect the assessment of the risk and return. The four pillars of our ESG work program are ESG integration, responsible ownership, reporting and disclosure, and outreach.
We have championed the development of the green bond market through 138 transactions, totaling, more than USD 10 billion in almost 20 currencies. We have also, along with many of you, established best practice guiding principles including seeking a second opinion, verification by a third party and impact reporting on use of proceeds. These principles are now being used to support the development of other thematic bond categories including gender bonds and blue bonds. We continue to seek ways in which we can leverage our funding activities to draw attention to sustainability and recently started issuing sustainable development bonds. In this respect, we have introduced “Use of Proceeds” language in all the bonds that we issue, to highlight to investors that we use the funds we raise in the capital markets for one purpose – to finance sustainable development projects and programs in our member countries. All the projects and programs, are intentionally designed to achieve a positive social impact, and undergo a rigorous review as well as an internal approval process aimed at enabling equitable and sustainable economic growth.
Our bonds help to raise awareness for pressing global issues. For example, in January 2018, we issued a CAD 1 billion benchmark transaction anchored by a Canadian ESG investor Addenda Capital, to raise awareness on the important role of women empowerment in building sustainable societies.
In February 2018, we issued a private placement for the Swedish Insurer, Folksam, to raise awareness for the four Sustainable Development Goals (SDGs) that they have chosen to guide their investments, namely (1) good health and well-being, (2) gender equality, (3) responsible consumption and production and (4) climate action. The strong demand for our sustainable development bonds demonstrates investor appetite for sustainable and responsible investments.
Many of our client countries have sought various forms of support from us on issues of sustainability. We have specifically supported the ASEAN countries in developing Sukuk Green bond principles and Fiji, Indonesia and Nigeria in respect of their recent green bond transactions. We have also facilitated the transfer of USD 3.9 billion in catastrophe risk to the capital markets to support our clients in disaster risk management. These transactions have been well received by investors in insurance linked securities, pension funds and other asset managers around the world.
Through our various initiatives, we have observed a growing investor interest in sustainable investing. This observation is confirmed by Schroders who recently polled of over 22,000 people who invest in 30 countries worldwide. Specifically, Schroders found that 78% of people feel that sustainable investing is more important to them now than it was five years ago. In polling 500 institutional investors, Schroders also found that:
- 44% were concerned about investment performance
- 41% believed there was a lack of reported data and transparency
- 28% had difficulty measuring and managing risk
- 23% cited cost as a challenge
- 14% said they were not comfortable making sustainable investments
- 11% cited “other reasons” and
- 20% said they did not believe in sustainable investments.
While research has continued to grow on sustainable investing, more progress has been made in respect of incorporating ESG factors in equity investing, than in fixed income investing. This is, why, we chose to focus our research on sustainable fixed income investing. The approach of the research was to complement a comprehensive review of all the existing research on sustainable fixed income with interviews of the largest asset owners, asset managers and data providers in this area.
The research has many pertinent findings. Some of the findings that I would appreciate your perspective on are:
- Do ESG factors constitute material credit risk and does incorporating ESG factors in the investment process require sacrificing returns?
- Are you using the SDG framework to focus your ESG type investments?
- How are you incorporating ESG in your fixed income investment process – at the policy level, investment process, products, individual assets, public relations and reporting?
- Do you prefer to see ESG ratings alongside or integrated into the traditional credit ratings?
- Have you set up in-house proprietary ESG scoring systems to complement external third-party providers. Do you consider this instrumental to your success?
I also hope that you will make recommendations on how to tackle challenges associated with data quality, transparency and standardization.
I hope that the conversations today will be candid so that we can further enrich the research findings. I also hope that you will continue to work with us to deepen this important work so that we can mainstream incorporating ESG factors in fixed income investing, and champion the development of new products that will meet your investment objectives.
I believe that this round table and the research findings will lay the foundation for scaling up sustainable fixed income investing. It will also complement our work on the November 2018 G20 Investor Forum that will bring together Heads of State and Institutional Investors. The forum is expected to propose concrete actions for scaling up long-term sustainable investments.
More importantly, as asset managers and asset owners we have a duty to make responsible investment decisions that not only enhance our individual portfolio returns and better manage risk but also promote a sustainable financial system and society.
I look forward to fruitful discussions.