October 24, 2007 — The World Bank partnered with 183-year-old Dutch bank ABN AMRO this fall to issue World Bank bonds boosting both World Bank projects and climate-friendly companies.
ABN-AMRO, recently acquired by a consortium led by Royal Bank of Scotland, sold about 150 million euro of World Bank Eco 3Plus bonds within a month of their launch September 17, says Frans Kuijlaars, Senior Vice President and Head of Benelux Sales, ABN AMRO Markets.
The bonds, with a guaranteed minimum return of 3 percent, help finance anti-poverty World Bank projects. The bonds' upside return is tied to the performance of an index of companies that focus on climate issues and the environment.
“Experience has shown us that investors are indeed interested in sustainability and green investments but they also expect a good return,” says Kuijlaars. “We believe that you should not have to give up return to make green investments. So, this product's success is based on its appeal to investors as a green product, a safe product with a solid base yield plus an attractive upside potential.”
The companies on ABN AMRO’s Eco Index are spread around the world and operate in eight sectors: water, waste management, geothermetrics and alternative fuels, platinum and palladium used in catalytic converters (automobile pollution control equipment), wind power, water-powered energy, bio-ethanol and solar energy.
The minimum investment in the six-year World Bank Eco 3Plus notes is 1,000 euro, but the average investment so far has been 50,000 euro. The guaranteed return of 3 percent allows investors to gain the benefit of investing in climate friendly companies that may otherwise be inaccessible without taking on much risk, adds Kuijlaars.
The bonds mark the first time ABN AMRO opened up its retail distribution network to an outside issuer for this type of product. Although ABN AMRO had previously talked informally over a number of years with the World Bank about partnering on a bond issue targeted at the retail market, discussions didn’t occur until July on the Eco3 Plus note, Kuijlaars says.
“With market interest in the Netherlands for green products, the development by ABN AMRO of the Eco Index and a retail product that paid a minimum return to investors, the timing was finally right for this World Bank bond,” he explains.
The Eco Index itself grew out of ABN AMRO’s increasing concern about climate change, says Suellen Lazarus, a senior advisor at ABN-AMRO. ABN AMRO, named this June by the Financial Times as the Sustainable Bank of the Year, created a virtual network called Eco Markets. The network consists of different business lines, each devoted to developing products to address the challenges of climate change.
“In terms of our business, our clients are looking for assistance in addressing the risk and opportunities of climate change. Our clients want to capitalize on those opportunities, and you get first-mover advantage, and so we are developing products that help our clients respond. The Eco Index is one of those things that have come out of this work,” she says.
“It’s not a one-shot game. We really are committed to it, and it’s basically all around our organization,” adds Kuijlaars.
For its part, the World Bank wanted to use its funding program “as a vehicle to raise the visibility of what the World Bank actually does in the world, as we do not have a budget for this type of advertising,” says George Richardson, the World Bank’s Principal Financial Officer for Capital Markets.
ABN AMBRO sent brochures to 15,000 private banking clients and direct mail to 100,000 retail investors describing the World Bank Eco 3Plus Note, the Eco Index, and the kinds of World Bank projects the bonds would support, such as improvements to primary education in the Philippines, investments in health care and education in Brazil, and combating TB and HIV/AIDS in Russia.
The effort has built awareness about the World Bank in the Netherlands and has allowed the World Bank to “reach mom and pop,” says Lazarus of ABN-AMRO. “They can have a stake in the World Bank.”
