Thank you very much Mr. Wallenberg for your kind introduction, and for inviting me to make introductory remarks at this year’s SEB Climate and Sustainable Finance Seminar. It’s a great pleasure to be speaking about sustainable finance in front of such a distinguished group of leaders in this area. Scandinavian investors have been at the forefront of the shift to sustainable investing and SEB is a recognized global champion for “greening” the capital markets. In fact, the World Bank’s first green bond in 2008 was structured and underwritten by SEB, and since then we have continued to work very closely with SEB (and in particular Christopher Flensborg and his team) on creating new green products. Our partnership with SEB is something we value very dearly, and we certainly will not forget the role our two institutions jointly played in launching the green bond market.
Sustainable finance is at the heart of what we do every day at the World Bank Treasury. The basic challenge we face when we come to work in the morning is how can the Bank help meet the aspirations of a growing global population, lift people out of poverty, end protracted periods of conflict and violence and reduce inequality in ways that are environmentally and socially sustainable? There is tremendous urgency to finding solutions to this challenge. If we continue on our current path, by 2030, it is estimated that the impact of climate change could leave more than 60% of the world’s poor living in areas impacted by chronic consequences including fragility, conflict and violence and with wider global consequences including security challenges.
Over the past decade, the World Bank has made great strides in promoting more sustainable and resilient economies. Since 2008, we have issued $10.2 billion of green bonds in 18 different currencies. We have also issued several pioneering carbon emission rights linked bonds. Between 2011 and 2016, we committed loans totaling $63 billion dollars, an average of more than $10 billion per year, to more than 1,000 climate-related projects, and we are looking to ramp up this effort going forward. By 2020, we have established very ambitious targets of having at least 28% of our portfolio go to climate finance, with specific goals of helping our member countries add 30 gigawatts of renewable energy, in other words renewable energy enough to power 150 million homes. We are also working with 40 countries to support them in developing climate-smart agriculture investment plans and are hosting Invest4Climate, a new platform for climate action in partnership with the UN. This platform will bring together national governments, financial institutions, investors, philanthropies and multilateral agencies to support transformational climate investments in developing countries.
In light of the recent devastating natural catastrophes we have seen across the globe from Bangladesh, the Caribbean Islands, West Africa, Mexico to Texas, I also want to highlight the work the World Bank has been doing in promoting natural disaster risk management for our clients. This is a critical challenge for us, because the impact of natural catastrophes, like earthquakes, hurricanes and droughts, holds the very real risk of rolling back years of development gains in our client countries. In fact, the impact of extreme natural disasters is equivalent to a $520 billion loss in annual consumption globally and forces about 26 million people into poverty each year.
In response to this challenge, we have greatly stepped up our work in this area. We have executed transactions that in the aggregate have transferred $2.5 billion of catastrophe and weather risk from our client countries to capital markets investors, including a truly ground-breaking $425 million pandemic risk transaction we launched in June that provides insurance to the 77 poorest countries in the world against the out-break of epidemic influenza, SARS, Ebola and other deadly diseases. Another transaction we executed this year transferred $360 million of Mexican sovereign earthquake and hurricane risk to the capital markets. This transaction was launched in August, which turned out to be timely since last month’s massive 8.1 earthquake just off the Pacific Coast of Mexico triggered a $150 million payout to Mexico that will help the country rebuild vital infrastructure.
The Bank is also working closely with cities in response to the rapid urbanization that is unfolding in our member countries. The United Nations estimates that the world’s cities will add an additional 2.5 billion people by 2050, with 90% of that increase concentrated in Asia and Africa. It is imperative, therefore, that we focus on the needs of urban populations. We have joined forces with the Rockefeller Foundation’s “100 Resilient Cities” platform to encourage cities within the network to develop comprehensive management strategies for catastrophic risk and, should that strategy dictate, provide technical assistance to cities to transfer part of their catastrophic disaster risk through World Bank’s platform.
While I am very proud of all of the work we are doing at the World Bank to foster sustainability and resilience, it is clear that the aggregate financial resources of the Bank, and our peer institutions in the public sector, are simply too limited to provide huge resources required for the transition to a more sustainable, global economy. The Bank is principally a catalyst in this endeavor. While we can, and do, pioneer new forms of financing and create accommodative investment environments, ultimately it is private investors, and specifically the capital markets, that must provide the bulk of the investment money that is needed.
For the private sector, finding solutions to these problems is also an enormous opportunity. The investors that most aggressively embrace this challenge today will be the winners of the future, because reorienting financial flows to be more sustainable will not only mitigate climate change, fragility and violence, but also will create new jobs and drive economic growth. Renewable energy, for example, is one of the fastest growing sources of global employment, with the number of jobs having increased 40% between 2012 and 2016. Just in the United States alone, twice as many people are now employed in the wind industry than in the coal industry. And all signs point to this trend accelerating going forward. A report by the New Climate Economy Project, for example, projects that global demand for climate resilient infrastructure will surpass $90 trillion between now and 2030. Clearly, that level of infrastructure development will present many attractive opportunities for investors.
We also know the money is there. It is estimated, for example, that approximately $24 trillion is still invested in low-yielding government securities around the world, with perhaps as much as $8.5 trillion locked up in virtually zero or even negative yielding securities. Re-purposing even a relatively small percentage of those investments each year will have a significant impact on our collective future.
The investment opportunities are enormous and the money is there – what else is needed to drive this transition? I believe another critical ingredient is information. We cannot expect investors to re-orient their portfolios to be more sustainable if they are not being provided with the information they need to make those assessments.
While the number of companies in the S&P 500 doing some sustainability reporting increased 62% between 2011 and 2016, and now stands at an impressive 82%, the quality and depth of this reporting varies significantly. The focus now must be on improving and standardizing disclosures. In that regard, the recommendations of the Financial Stability Board Task Force on Climate-related Disclosures, which were released at the end of June of this year, offer one way forward and have already drawn support from more than 100 companies with more than $11 trillion in assets. At the World Bank Treasury, we are working hard to do our part. Since 2015, we have been publishing detailed impact reports on our green bond portfolio, which provides information, for example, on the estimated annual greenhouse gas emissions avoided by the renewable energy and energy efficiency projects in that portfolio. In addition, as a signatory to the UN backed Principles of Responsible Investing (PRI), the World Bank’s Pension Plan reports annually to the PRI on its ESG integration efforts across investment portfolios and processes.
In closing, I want to thank you again for the invitation. I am very excited to hear the presentations and panel discussion, because I believe the institutions represented here this morning will continue to originate many of the new financial products that are sorely needed to increase the speed and volume of money flowing into financing a sustainable future. Albert Einstein said we cannot solve our problems with the same thinking we used when we created them, and I am looking forward to learning about some of the new thinking from my fellow speakers.
