The World Bank (International Bank for Reconstruction and Development, IBRD) has issued bonds that for the first time directly link returns to the performance of companies advancing global development priorities set out in the Sustainable Development Goals, including gender equality, health and sustainable infrastructure.
Investors in the bond include AGPM Vie, Areas Vie, BNP Paribas Cardif France, BNP Paribas Cardif Italy, Fideuram Asset Management Ireland, Generali France, MGEN, Prevoir Vie, Sella Gestioni SGR and Suravenir.
The equity-index linked bonds, a 15-year and a 20-year structure, have raised a total of €163m from institutional investors in France and Italy. The World Bank will use the proceeds to support the financing of projects that advance its goals of eliminating extreme poverty and boosting shared prosperity, and that are aligned with the Sustainable Development Goals or SDGs.
"This bond is an innovation that demonstrates the powerful role of capital markets in connecting savings with development priorities, while offering investors an attractive risk-reward profile," said Arunma Oteh (pictured), World Bank vice president and treasurer, in a statement. "Looking ahead, we anticipate coming to market with similar issuances that would attract a range of investors across the globe."
The return on investment in the bonds is linked to the stock performance of companies included in the Solactive Sustainable Development Goals World Index, which includes 50 companies that, based on methodology developed by Vigeo Eiris' Equitics, dedicate at least one fifth of their activities to sustainable products, or are recognized leaders in their industries on socially and environmentally sustainable issues. Solactive applies volatility and diversification filters to reach the final index composition.
According to Heike Reichelt , head of investor relations and new products at the World Bank, the transaction is a “great way” to raise awareness for the SDGs and the role the private sector can play in achieving them – both from the perspective of investors interested in supporting the SDGs through their investment and companies included in the index.
“We are working with BNP to offer bonds linked to this equity index in other markets in Europe, and possibly also Asia and the US, like we did for the World Bank Green Growth Bonds,” said Reichelt. “We are seeing growing interest from investors in investment products that support projects with a positive social and environmental impact – the index link gives investors an additional dimension and brings in private sector companies that are also advancing the SDGs in their operations. I think this will be a growing part of the menu of sustainable investment products this year.”
The bonds were arranged by BNP Paribas as part of the "SDGs Everyone" initiative. Under the initiative, the World Bank will issue bonds that raise funding to support the financing of projects that support the SDGs, and investors benefit from the performance of companies included in the equity index. The initiative is an innovative solution and new financial model that supports the SDGs, as called for by the UN Secretary-General's Financial Innovation Platform (FIP) launched in October 2016.
"SDG Everyone” is a joint project between the World Bank and BNP Paribas and other issues are planned as part of the initiative, according to Terence Darrigade, head of institutional clients for France, Switzerland, Luxemburg and Monaco. "Sustainable finance continue to gain momentum among our investor clients and we will continue to innovate in this field in order to meet their needs," said the spokesperson.
Olivier Héreil, chief operating officer and head of asset management, BNP Paribas Cardif, stated that since 2014, BNP Paribas Cardif in France has invested more than €4bn in socially responsible investing (SRI). "These innovative products combine financial performance with environmental and social impacts, and as a responsible investor, we are pleased to have played an active role in their development," said Héreil, in a statement.
Olivier Osty, executive head of global markets at BNP Paribas, said the bank remains committed to bring its 'expertise' to the UN's financing platform for SDGs. "We are confident that we can replicate the success of the World Bank's Green Growth Bonds with this new program," said Osty, in a statement.
BNP Paribas launched its sustainable finance programme in the summer of 2016 as one of the main pillars on the bank's strategy going forward. The bank's climate solutions range has sold over €3bn in three years with products linked to the sustainable investing. BNP Paribas also licensed earlier this year the FTSE Divest-Invest Developed 200 Index. BNP Paribas is one of the largest underwriters of sustainable investment globally. In total, BNP Paribas has lead managed more than €12bn in green bonds including more than €1bn in equity-linked (converted as at August 31, 2016 exchange rates). It also launched the World Bank's first equity-index linked green bond in 2014 and has launched or licensed 12 ethical equity indices since 2013. To date, the bank has financed or advised on more than €7.2bn in renewable energy projects across the globe. Last November, BNP Paribas committed to more than doubling the amount of capital it allocates to renewable energy to €15bn by 2020.
According to Amina Mohammed, UN Deputy Secretary-General, collaboration between the public and private sector will help to leverage innovative financial solutions that can deliver on the SDGs.
"The 2030 Agenda for Sustainable Development is a transformative agenda which aims to make our world more inclusive, peaceful and prosperous," said Mohamed. "There is a momentous opportunity to change incentive structures in financial markets, shape consumer preferences as well as shareholder interest so that they reflect sustainability."
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