The arrival of the World Bank’s newest benchmark green bond, its largest in U.S. dollars to date, is a story of innovation and the growth of a market, one that is supporting climate-friendly development by reaching an expanding pool of investors who are seeking investment opportunities that have a positive impact.
The World Bank routinely issues benchmark bonds in the billions of dollars that are sold to central banks and other large institutional investors to help fund its development work while providing a AAA-rated, fixed-income return. With “green” bonds, the Bank can provide the same benefits while applying a unique approach: it reaches out to investors who consider longer-term climate risk and sustainable and responsible investing in their analyses and creates bonds that both fit their needs and support climate-friendly projects.
These investors are important for mobilizing private sector climate finance, which is the main purpose of the green bond market. With each new green bond issued, the size and the interest from investors has been growing.
The $600 million, 10-year green bond issued in February was both the World Bank’s largest in U.S. dollars and longest-dated benchmark-sized green bond. Its investors reflect the expanding interest in green bonds from around the world. They include Swedish pension funds AP2 and AP4, Deutsche Bank Treasury, asset managers Blackrock, Mirova and Nikko Asset Management, Nippon Life Insurance Company, Praxis Intermediate Income Fund, the United Nations Joint Staff Pension Fund and Zuercher Kantonalbank.
“Landmark green issuances from triple-A issuers such as the World Bank further enhance the appeal of the green bond market, promoting investment in sustainable projects that mitigate the effects of climate change at commercially appealing returns,” said Alex von zur Muehlen, Group Treasurer of Deutsche Bank.
Deutsche Bank announced plans the same day to invest Euro 1 billion equivalent in a portfolio of green bonds, starting with the new World Bank 10-year benchmark bond. “Deutsche Bank’s decision to set up a dedicated portfolio shows the growing appeal of green bonds,” said Doris Herrera-Pol, Director and Global Head of Capital Markets at the World Bank. “It supports the expansion of the green bond market as it continues to mobilize private sector funds for climate finance.”
Other large investors are making similar commitments to sustainable investing. Barclays announced in September that it would invest at least GBP1 billion equivalent in green bonds over the year.