Good morning to all the distinguished speakers and viewers who have joined today. I’m delighted to be with you at the 10th edition of the City Week event.
Convenings like today’s are crucial as policymakers, financial industry leaders, and the international community come together to address the multiple issues facing the future of financial services in the new COVID-19 world. Over the past few months, it has become apparent that the pandemic is a watershed, forcing us to embrace a future we didn’t expect - one that is marked by structural changes in the way we work, consume, and communicate. These changes are reshaping industries and reallocating capital and yet creating opportunities for those who can spot the emerging trends early enough.
I will begin by talking about some of the challenges countries have been facing while struggling with the pandemic, particularly emerging market and developing economies, as they are the hardest hit. I will also touch upon the World Bank Group’s response to the COVID-19 crisis.
In the second half of my remarks, I will explore how the World Bank is making a difference towards a sustainable recovery and share some experiences from our longstanding work as a champion and promoter of sustainable capital markets.
The COVID-19 pandemic has triggered what is likely to be the deepest global recession since World War II. The global economy could shrink by 5.2 percent in 2020 before picking up in 2021. The pandemic has hit developing countries particularly hard due to capital outflows, declines in remittances, and the collapse of informal labor markets with limited social safety nets. COVID 19 threatens to push over 100 million people into extreme poverty, that is less than $1.90 per day per person, and is exacerbating inequality throughout the world.
Billions of jobs are under threat worldwide. Nearly 80 percent of the world’s informal economy workers – 1.6 billion people – have faced COVID-19 lockdowns and slowdowns in hard-hit industries including wholesale and retail trade, food and hospitality, tourism, transport and manufacturing. With 740 million women globally in informal employment and a majority employed in services, women are particularly hard hit by the crisis. Remittance flows which are an economic lifeline for many low-income families and a key source of revenues for many developing economies – are expected to fall by 20% in 2020.
The strong shareholder support, our longstanding partnership with client countries, the wide local presence as well as the sound financial principles we follow have allowed the World Bank Group to step up quickly to provide counter-cyclical financing during the on-going COVID-19 crisis. We expect to provide an exceptional crisis response to support developing countries of up to US$160 billion over the 15 months period beginning April 2020 to June 2021. The ambition of the World Bank Group crisis response is to help client countries assist at least one billion people impacted by the COVID-19 crisis.
The World Bank Group response operates across the three stages of crisis ─ providing relief, supporting restructuring, and building a resilient recovery. The relief stage involves emergency response to the health threats posed by COVID-19 and its immediate social, economic, and financial impacts. The subsequent restructuring stage focuses on strengthening health systems for pandemic readiness; restoring human capital; and restructuring, debt resolution, and recapitalization of firms and financial institutions. Finally, the resilient recovery stage entails taking advantage of new opportunities to build a more sustainable, inclusive, and resilient future in a world transformed by the pandemic.
The World Bank Group’s emergency health response is already under implementation in 111 countries which includes addressing transmission issues. It also addresses health service delivery through the expansion and reorganization of health care, introducing new service delivery modes (e.g. telemedicine) and drawing on private sector capacity to ensure safe access to COVID-19 and other essential health services. The Bank is helping countries secure urgently needed medical supplies through Bank Facilitated Procurement. In addition, our efforts are working to enable households to cope with income shocks, comply with mitigation measures, and access protective gear, supplies, and water and sanitation.
We are also helping client countries manage budgets as spending needs grow, economies contract and fiscal pressures mount. Public financial management process needs to be temporarily adjusted during the emergency response to facilitate fund flows, procurement and payroll management.
The World Bank Group is preparing additional interventions on human capital under the Social Response. The economic shock associated with supply disruptions, lockdowns and social distancing will likely result in worse nutrition and higher rates of stunting in children. School closures are already impacting learning for 1.5 billion students worldwide, half of whom lack access to a computer, and might result in school detachment. As part of our emergency response, the Bank is supporting education systems to mitigate learning losses using multiplatform remote programs for learning and early childhood development. To date, 120 countries are implementing some modality of multiplatform remote learning. There is also critical support to replace school feeding programs stopped due to school closures through household or community delivery.
This brings me to the increasingly larger role capital markets are playing in directing financing to build a sustainable and resilient future – a path where investors consider the Environmental Social and Governance, or ESG, credentials and impacts. We understand that financial markets play a vital role for the ‘real economy’ as they provide financial solutions to tackle the world’s most pressing problems, including solutions to address income inequality and poverty.
It is critical that governments and the private sector also do more in the ‘real economy’ to account for and address ESG related externalities so that the risk-return calculation is more accurate and helps channel funds towards sustainable activities.
At the World Bank, we continuously strive to find new ways to leverage our market knowledge to help member countries design programs that meet their development priorities. We design World Bank projects to achieve positive environmental and social impacts. All our projects go through an extensive review process to ensure we include sustainability considerations and address environmental and social risks. Our portfolio management and review processes help us improve and adjust projects as needed.
Because we have decades-long relationships and work closely with our client countries, we are nimble, and we can adjust – when times call for it – like now – to reprioritize projects to help governments address new and urgent needs as they combat COVID-19. But besides addressing the immediate health threat from COVID, and its social and economic disruptions, we are maintaining a line of sight to our client countries long-term development vision to seize opportunities to create a resilient and sustainable future.
Like any bank, IBRD borrows and lends money. Our lending goes to emerging market and developing countries for sustainable development and our resources come from our shareholders and from borrowings in the capital markets, with an annual funding program of about USD 60-65 billion. To meet the increased requirements from client countries, we stepped up our funding program in FY 20 (our financial year closes in June) by raising USD 75 billion from the markets.
In this context, let me say a few words about the International Development Association or IDA. IDA is a 60-year-old development organization and an integral member of the World Bank Group. It is one of the largest sources of assistance for the world’s 74 poorest countries. IDA provides highly concessional financing at zero- or very low-interest rates and outright grants to low-income countries. With the help of donor contributions, IDA loans and grants since its inception have totaled $422 billion.
IDA’s business model has evolved over the last few years to enhance efficient utilization of shareholder resources. Starting two years ago, IDA has been issuing bonds in the capital markets to scale up its financing to low-income countries giving investors an opportunity to invest in triple-A rated bonds that support hundreds of millions of beneficiaries around the globe, especially in African countries. In FY 20 alone, IDA raised up to USD 5 billion from the markets. It is a great example of capital markets having a substantial developmental impact.
In recent years we have been issuing bonds to raise awareness towards development challenges and have been connecting investors to the purpose and importance of their investment using the Sustainable Development Goals as a framework. For example, we have issued bonds to raise awareness for the need to protect marine and freshwater resources, tackle the use of plastics to protect our oceans, address food loss and waste, and the importance of gender and income equality.
Our funding program also helps finance our support to countries as they invest in their people – programs including health, education, and social safety nets. These are all themes that are at the heart of World Bank’s work with our member countries and these acquire even greater importance with the onset of the pandemic.
But we are not just another issuer of sustainable bonds. We are also a champion and promoter of sustainable capital markets. We have been playing this role through setting the foundations for the development of the Green Bond, Social Bond, and Sustainability-Linked Bond Principles; our partnerships with asset owners like the Government Pension Investment Fund of Japan to expand ESG considerations in fixed income; our role in developing ESG and sustainable investment guidance for central banks through the Network for Greening the Financial System; and by convening investors and sovereigns to engage on ESG concerns and opportunities.
We are communicating the environmental and social impacts of everything the World Bank does across all the sectors in which we lend to our member governments. We want investors in our Sustainable Development Bonds to understand what the entire balance sheet finances, not just our green bond portfolio. Through our Sustainable Development Bonds issuance, we are communicating: World Bank’s development mandate, how our activities are aligned with the SDGs, and that our projects are designed for impact and carefully assessed for environmental and social risks.
The green, and now, social and sustainability bond market is essentially about purpose and transparency. There is much focus on ESG factors in investing and how these bonds fit with ESG strategies and sustainable investing. Labels are a useful first step in this direction. However, what we must be working towards is broader transparency and increasing information and data so that investors can make more informed decisions for all their investments.
With improved data and technology, investors can extend their focus on risk management to take into account climate and social risks, and factor in purposeful investing to include a wider range of investments.
For over a decade now, we have been seeing investor behavior and demand change. Investors are looking for new and innovative opportunities that allow them to do well and to do good. Our bonds give investors the opportunity to invest in liquid, highly rated products which finance projects that serve a social purpose.
Let me conclude by highlighting that the pandemic has crystalized the opportunity for sustainable investment to benefit everyone. Issuers and investors can lead the way, but the focus must be on transparency. Issuers must be aware that investors are assessing the risks and opportunities of their investments and issuers must explain how they are using investors’ funds to make a positive difference for society.
And investors must look at their entire portfolio to see how they can use the power of investment to contribute to sustainable development, and demand transparency from issuers in order to take sustainable decisions. I am confident that our collective efforts can drive a sustainable and resilient future. Thank you.