The World Bank is continuing to advance the green bond market with its most recent series of Green Growth Bonds — green bonds with a return linked to an ethical equity index.
This innovative product, developed in partnership with BNP Paribas, is designed to appeal not only to large institutional investors who are the usual buyers of World Bank bonds, but also to individual retail investors.
These investors are looking for opportunities that have a positive impact on the environment and help address climate challenges, while still offering a return on their capital that is potentially higher than other opportunities offered in the current low-interest-rate environment.
Each year, the World Bank — officially known as the International Bank for Reconstruction and Development, or IBRD — issues $30 billion to $50 billion of debt in the global capital markets to finance its lending to client countries. As a triple-A rated institution, the Bank is able to borrow at attractive rates and pass them on to its clients. Much of its debt is purchased by central banks and large institutional investors.
In addition, the Bank also customizes smaller transactions that are designed for retail investors, particularly through the Uridashi market for individual investors in Japan, and now through Green Growth Bonds to climate-aware individuals around the world.
The Bank has so far launched 12 Green Growth Bonds for investors in Europe (including Belgium, France, Italy, Luxembourg, Monaco, and Switzerland), Asia, and the United States. Some of these bonds have been privately placed with institutional investors or high-net-worth individuals, while others have been marketed to the general public over a period of four to six weeks.
Demand for Green Growth Bonds has been particularly strong in Europe, with final orders exceeding the original targets by more than six times. For example, the first Green Growth Bond, offered in Belgium and Luxembourg, closed with total subscriptions of $91 million, and the second, offered in France, Luxembourg, Monaco, and Switzerland, closed with a total subscription of $103 million, both exceeding the initial target of $15 million within the first week of the subscription period.
A recent transaction launched in the United States closed with total subscriptions of almost $30 million. In Asia, there has been demand from high-net-worth individuals for three Green Growth Bond transactions totaling $60 million.
The strong demand for Green Growth Bonds from individuals not only helps increase awareness about the World Bank as an international development organization committed to tackling climate change with projects financed in its member countries, it also is an encouraging sign that the individuals care about climate change and want to invest their own money in solutions that help address climate challenges.