GREEN SOCIAL SUSTAINABILITYll

World Bank connects investors with impact amid Covid-19
The World Bank has hit newheights in bond issuance since
the start of the pandemic, as
investors have supported IBRD
and IDA in the task of alleviating
Covid-19’s social and economic
damage. Heike Reichelt,
head of investor relations
and sustainable finance,
World Bank Treasury, spoke to
Sustainabonds’ Neil Day about
how its issuance is connecting
investors with impact.
Neil Day, Sustainabonds: The WorldBank Treasury is the treasury for both
IBRD, known as World Bank in thecapital markets, and a relatively newissuer, IDA. Can you give us a very
brief overview of the two issuers andtheir funding programmes?
Heike Reichelt, World Bank (pictured):
Until recently, we at the World Bank
Treasury were primarily responsible forthe funding programme of International
Bank for Reconstruction & Development(IBRD). This is the original organisationin the World Bank Group that has been in
the market for over 70 years. It has a funding programme of about $55bn-$65bn, although some years it is more, like this pastfiscal year. IBRD is known as “World Bank”
in the capital markets and is a very well established issuer.
In 2018, we introduced another issuer
to the capital markets, International De-

velopment Association (IDA). Both IBRD
and IDA are focused on achieving theoverall goals of the World Bank Group —to end extreme poverty and boost sharedprosperity — and support member country governments in achieving their development goals. But they have different
capital structures, and are legally separate
entities. IBRD focuses on middle-income
countries, and IDA on lower-income
countries. The financial products IDA
provides are also different — for example, IDA provides grants to a group of its
poorest members.
IDA has been around a long time, morethan 60 years, but until 2018, IDA received
funds for its activities exclusively fromdonors — primarily through a replenishment programme every three years. IDA’s
financial model was changed as it entered
the capital markets, with the introductionof new risk management policies that addressed the needs of bondholders — like

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1 SUSTAINABONDS.COM 5 July 2021

IBRD’s, IDA bonds are rated triple-A. IDA
now has a funding programme that is already around $10bn, so it has grown very
quickly.
Day, Sustainabonds: The Covid-19
pandemic and plans for “buildingback better” have influenced many
entities’ sustainable bond issuanceand related activity. How, if at all,has it influenced the issuance of theWorld Bank and IDA?
Reichelt, World Bank: There are two
ways of looking at how it’s influenced ouractivities.
One is on the lending side. While wehave many ongoing programmes in different areas, once the pandemic hit there
was an immediate focus on addressing thehealth crisis. It was basically all hands ondeck to make sure that we could quickly
provide countries with what they neededto address this. We worked with eachcountry to assess what they needed mosturgently — this included projects such as
health worker training, providing personal
protective equipment and ventilators, butalso finding ways of getting cash transfers
to families and, importantly, making surechildren had the opportunity for distancelearning — in many countries, energy access is not reliable and not every child ina household has access to a computer, so
countries had to find different ways to continue teaching.
And then on the other side is funding.
Put simply, we just had to do more. So, in
April 2020, IBRD issued the largest supranational bond, an $8bn transaction. To prepare that transaction we did a net roadshow
to highlight the types of projects IBRD was
financing as part of our Covid response, butalso to make it clear that it was all within our
existing risk parameters. IBRD has a capital
buffer for use during crises: capital that was
set aside so that it can act countercyclicallyand support countries.
So that’s how the pandemic influenced
our issuance: we had to do more andquickly — particularly for IDA. When
we introduced IDA in 2018, we expected
the funding programme to grow to about$5bn-$10bn in five to 10 years. That timeframe was very much shortened: in fiscal
year 2020 (to 30 June 2020) we issued $5bn
and this past fiscal year we issued $10bn,
so within four years it’s already reached$10bn. So that was a big change in the issuance programme for IDA.
Day, Sustainabonds: When you were
ramping up issuance like that, did
you find the market could absorb thehigher volumes, and that you had thetools and flexibility to be able to do it?
Reichelt, World Bank: Yes. Fortunately,
the markets were good. There was a lot ofinterest in triple-A issuance. And while investors have to look at the financial characteristics of a bond — the credit, the maturity, the price and so forth — there was also
investor interest because of what the WorldBank does: a global multilateral organisation that’s really at the centre of trying tosupport countries. If nothing else, this pan-demic makes it clear how dependent we all
Photo: Etienne Ansotte/EC
are on what happens in other places in theworld — I’ve heard people say, “no one issafe until everyone is safe”. I felt that there
was a lot of support for our mission.
As for IDA, it is new, we are still working to have investors set up credit lines, andthat’s just going to be an ongoing process.
IDA has issued in dollars, euros, sterlingand Swedish kronor, and will be expanding
into other currencies. For every market,
there’s a lot of investor work that needs tobe done to explain IDA’s financial structure, IDA’s purpose, how IDA can provide
grants but still be triple-A — it takes some
explaining. But as more and more investors
get credit lines set up, IDA will be able togrow its programme.
Day, Sustainabonds: As head of sustainable finance, what’s your take on
the differences between the variety
of terms used in this field — SRI, ESG
and impact?
Reichelt, World Bank: There are so manydifferent terms and people use them inter-

Examples of some of the World Bank’s 150+ Covid response projects
Argentina
Isolation andPatient Care

MexicoDominican Republic

Improving Primary
Health in Rural Areas

EcuadorInclusive &Sustainable Growth

Emerging Infectious
Disease Prevention

Safe Schooling &Distance Education

MoroccoAccess to Finance

China

TurkeyEco-Industrial Parks

Gabon

JordanCOVID-19 Strategic
Preparedness &Response

Youth, Technology,& JobsPeru
Investing in Human
CapitalChina

Tapping continent
financing for healthemergencies

India
Eswatini

LebanonHealth System
Strengthening for Human
Capital Development

Health worker training
and equipment

Ventilators and PPE

Note: IBRD projects; Source: World Bank

2 SUSTAINABONDS.COM 5 July 2021

changeably, but actually there are differences in the approaches these represent. I
like to keep things simple, so I use something I once heard: the ABCs of SRI, ESG
and impact, which tries to bucket the different approaches.
“A” refers to “Avoiding”, or filtering, certain securities, issuers or sectors, and thatis typically referred to as socially responsible investing (SRI). It can take different
forms, like negative screening, or best inclass, and so forth. SRI has been a common
approach in the US for many decades.
Then the “B” is an approach to portfolio management that tries to “Benefit”
stakeholders. It’s also referred to as ESG
integration, because it is about minimising
ESG risks or looking for ESG opportunities — but only to increase the value of theportfolio.
Lastly, the “C” is an approach that tries
to focus on ways to channel investments toalso “Contribute” to society — that’s impact investing.
The three strategies are not exclusive;on the contrary, most investors do someof each — especially investors who look atlabelled bonds. They expect issuers to havesome sort of screening, avoiding certain
types of investments; they focus on ESG integration, because they are also looking at
ESG from a risk perspective; but they also
want to see the impact — that’s a key component. Investors are looking for labelledbonds because they are looking for ways toshow that they are making a positive difference.
So that’s the ABC, and I consider sustainable investing to be the umbrella term
for the different approaches. All the approaches are trying to channel capital
towards activities that help with sustainability — which itself is about meeting theneeds of today’s generation without compromising the needs of future generations.
Day, Sustainabonds: You have beenin the markets for a long time. How
have the markets changed — especially in connection to sustainable finance — over the years?
3 SUSTAINABONDS.COM 5 July 2021

Examples of dedicated themes
Nutrition & Human Capital

Sustainable Cities

COVID-19

Women & Girls’
Empowerment

Responsible Consumption& Production

Women & Children’s Health

Water & Oceans

Green Bonds

Source: World Bank

Reichelt, World Bank: There are a coupleof keywords that capture the key changes.
One is “connecting”.
I come from the field of project finance,
having started in the export project financedepartment of KfW, and we could see what
we were financing. When we were financing projects such as telecommunicationsin Asia, for example, we’d see the buildings
where the data lines would be set up. Then,
when I moved over to capital markets, it was
rather anonymous. At the time, we would

Transparency goes
hand in hand with theconnection to purpose
issue bonds in French francs or Dutch guilders, and then we’d move on to the nexttransaction. And there were no questions
from investors about how we were using thefunds. When I moved to the World Bank, it
was at a time in the markets when this waschanging. We were starting to get questions
from investors about the World Bank as an
issuer and its development approach. But
it wasn’t really until the World Bank issued
the world’s first labelled green bond in 2008
that catalysed this development of investors
wanting to be connected to the purpose of
their investments.
That would be the big change I’ve witnessed, this connection. You can take thatmuch further: investors are connected tothe purpose of their investments; issuers
are connecting with investors in a dialogue
on building sustainable finance; within issuers, we are much more connected to thedepartments that are financing the projects; and so forth. Also, in relation to regulators and policymakers — before green
bonds, there was a lot of focus about tackling climate change, but there was no connection to financing. I remember speaking
in 2015 at an event at the annual COP thatwas held in France that year, to an audiencethat contained no financial people, it was
all policymakers. The capital markets justweren’t connected to policymakers the way
they are today.
Another keyword to capture the changes is “transparency” — and it goes hand inhand with the connection to purpose. Investors are asking for a lot of information
about the use of funds — transparency andreporting around issuers’ approaches, thetypes of projects, the different sectors that
we are supporting, project examples, metrics, and so forth.
So those are two key developments that
I see as part of the development of sustainable investing. Of course, it all goes back to
the general public recognising the climate
crisis and more recently — catalysed by the
pandemic — the attention being raised on
addressing social aspects to bring about amore sustainable future.

bonds, because that covers the entire balance sheet of the World Bank and our entire funding programme.
The labels are a way to communicate
to investors the types of projects the programmes are helping support, but of course
they’re also funding the bank. Our funding
strategy remains to offer investors a diverse
set of bonds in different currencies, different maturities and different structures as
our product mix. This past fiscal year we
had a big focus on extending the maturityof our funding.

Day, Sustainabonds: Some say thatthe pandemic has brought the focus
on the importance of “S” in “ESG
investing”. To what extent is thisevident?
Reichelt, World Bank: Before the pandemic, some investors said, “don’t forget
the S in ESG”, but for the most part — inthe bond markets, at least — when people
would say ESG, they actually meant E, they
meant green, or if they said sustainable,
they meant green. That’s because they recognised the huge impact climate risk has
on the value of their portfolios. This wasbehind the very first green bond that theWorld Bank issued in 2008. A set of Scandinavian investors approached us because
they saw that climate risk was affecting thevalue of their portfolio, and they wanted tofind a way to support projects that made apositive difference. But the focus was justvery much on the E.
With the onset of the pandemic, social
problems came to the surface globally andshowed what a financial impact they could
have, in the areas of health, inequality, andsocial tensions within society. Many people
have referred to the pandemic as a crisis ofinequality. So, when investing in a company, S is more than about how many womenare on the board; it’s also about how organisations are supporting healthcare forworkers, for example. For countries, it
could be about education and healthcare,
and also about how many jobs are in theformal sector and how many are in the informal sector.
So, yes, the pandemic has focused investors on how important it is to also consider the S in ESG, and not just for yourown portfolio in terms of benefiting yourown stakeholders, but also for society.
Day, Sustainabonds: The World Bankhas been labelling bonds for investors interested in ESG and impact
since the first “green bond” issued
in 2008 and has expanded the label
to “sustainable development bonds”.
Can you explain how this fits in the
4 SUSTAINABONDS.COM 5 July 2021

Click image to access full report

World Bank’s overall funding strategy
this year?
Reichelt, World Bank: Even when I
would be explaining our green bonds toinvestors, I’d note that the overall mandateof the World Bank is a social mandate.
As I mentioned earlier, the twin goals areto eradicate extreme poverty and boost
shared prosperity. That’s all focused on
people, and the reason climate is such a big
part of what we do is because of its effecton people. So, one could make the argument that green is social, that everythingis social. In our communication with in-Green bonds are a
sub-set of sustainable
development bonds
vestors, we were therefore finding it very
hard to silo things. Take a school that has
solar panels, for example: we have that in
our green bond project portfolio, but it’salso an education project and about ensuring people have access to energy. So, it’svery difficult to separate out the S — and,of course, the G runs through everything.
In our communication with investors, wetherefore expanded our approach to become a more holistic one, labelling all
our issuance as sustainable development

Day, Sustainabonds: You recently
published an impact report that consolidates your impact reporting into
one report for both sustainable development bonds and green bonds. Why
did you decide to publish one report,
instead of separate reports?
Reichelt, World Bank: It’s really based on
this holistic approach that we are talking
about. Green bonds are a sub-set of sustainable development bonds. In the report,
we’ve tagged with a green leaf projects thatare part of the entire balance sheet but arealso the focus of green bonds.
We issued the first green bond reportin 2015 and have learned a lot from producing it, and from the feedback we havereceived from investors. We have also
worked with other issuers on reporting,including to set up the first harmonised
impact reporting guidelines that were updated by the impact working group we areon that is part of the Green Bond Principles coordinated by ICMA. So, we’ve built
on the experience of green bond reporting and expanded that to the entire balance sheet. The approach has to be somewhat different because we have some 600
projects in the report, so it’s much bigger
and covers a wider variety of sectors than
the green bond reporting does, so we havebroken the report into separate chapters.
Green bond investors can still see theprojects where we’re allocating equivalentamounts to, from green bonds, and they
can see the expected impact. It’s still very

Project example: Health resilience in Lebanon
Development Challenge: Lebanon has the highest per capita concentration of refugees in the world,
including approx. 1.5 million displaced Syrians. The population of Lebanon increased by 30% in thepast six years, straining resources and public services. The current economic and financial crisis, andthe Covid-19 pandemic significantly compounded challenges faced by the health sector.
Project Description: Increase access to quality healthcare services for poor Lebanese anddisplaced Syrians and strengthen capacity to respond to Covid-19 by scaling up the scope andcapacity of primary healthcare, supporting the provision of healthcare services in public hospitals,
and strengthening the country’s capacity to respond to the pandemic. The project was revised toincrease the government’s ability to test and treat Covid-19 cases and finance the procurement ofvaccines, in what was the first World Bank-financed Covid-19 vaccine operation globally.
Expected Results (include):l Primary care services for 250,000 poor Lebanese and 250,000 displaced Syriansl Increase pregnant women receiving at least four visits to 60%
l Increase children fully vaccinated under the age of two to 75%
l Train 850 health personnell Covid-19 response: 11 treatment centres set up and equipped; 20 response teams; 2.25 million vaccines procured (for 1.1 million fully vaccinated people)
IBRD Financing: approx. $100m									much focused on climate and environment metrics for the green bond section,
but there are a broader range of metrics
for projects covered in the sustainable
development bonds section. If it’s an education-related project, for example, it also
has education metrics.
This helps us highlight our holistic approach and, again, focus on transparency— we’re not only pulling back the curtain
to reveal just the green slice; we’re opening
it all the way to show all our projects.
Day, Sustainabonds: In your engagement with investors and in your communication around bond issues, youhave highlighted various sustainability
themes in your issuance over the years.
How does that work, and are there any
in particular that you have been focusing on in transactions recently?
Reichelt, World Bank: All the bondsthat we issue are sustainable development
bonds, but we then engage with investors toraise awareness for certain themes. In thevirtual roadshow in April last year, for example, we focused on Covid and provided
some examples of health projects. Earlier
this year we had several interactions withinvestors where we highlighted gender andhow women and girls have been dispro5 SUSTAINABONDS.COM 5 July 2021

portionately affected by the crisis. A higher
percentage of women are frontline workers
in the health and elder care industry, andalso in retail, and more women than men
lost jobs. So we have issued a few sustainable development bonds raising awareness

8% of greenhouse gas
emissions are caused byfood that is never eaten
for certain development themes like gender and health, and also for clean water andoceans — although these are still under thelabels of green bonds and sustainable development bonds, to avoid a proliferationof labels.
We’ve been connecting these themes
to the Sustainable Development Goals(SDGs). When we issue bonds raisingawareness for gender, we will highlight
SDG 5, if it’s education, SDG 4, and soforth, so when investors do their own reporting, they have a connection to the
SDGs that we’re also supporting. But thefunds are not earmarked — we have to
make sure investors understand that; we’re
just raising awareness for the types of projects that the World Bank supports in theseareas. Investors are very receptive firstly,
because it connects them to the purpose

Source: World Bankof their investments, and secondly, because
it’s all very interesting.
One theme I’ve found particularly interesting is food loss and waste. We wereasked by colleagues in operations if we
could raise awareness for this. The theme
was particularly popular among Japaneseand Scandinavian investors. Some of thefacts I’ve learned when engaging investors around this are eye-opening: a thirdof all food that is produced is wasted; 8%of greenhouse gas emissions are caused byfood that is never eaten; 25% of all water inagriculture is used for food that’s never eaten — it’s shocking. It’s something that we’dnever thought about, and I can tell you, thenext time you think about throwing away
those strawberries because they don’t look
too pretty, you’ll think again, given all thegreenhouse gas emissions and water thatwas needed to produce them, and probably
eat them anyway. So, it can change personal behaviours, too.
Day, Sustainabonds: As you mentioned, while trying to help investors
achieve impact, your sustainable development bonds are also funding.
One of the notable transactions you
did this year was in an ultra-long maturity, 40 years in January — how did
this play out?

Reichelt, World Bank: That was a phenomenal transaction — a €2bn 40 year
bond with over 100 investors and an orderbook of €3.6bn. This was down to a combination of factors. The market was very
conducive to ultra-long maturities, highcredit quality issuance, and — as mentioned earlier — we were looking to extend
duration, so it came together really nicely.
The investors were mostly asset managers,
insurance companies and pension funds,
mainly from Germany and France.
We are looking to extend duration andthe euro market is a good market for that.
It’s going to be an ongoing focus, so we’ll belooking to issue more long maturity bondsin this new fiscal year.
Day, Sustainabonds: Are there anyother notable bonds that you would
like to highlight?
Reichelt, World Bank: Since the $8bn
record transaction last year, we have issued several two-tranche benchmarks, also
for an aggregate of $8bn. We have also issued several SOFR bonds that support thegrowth of that market and help with thetransition to the new benchmark.
But some of the nice transactions arethose where investors have shown a particular interest in a theme and we havethen designed a bond to connect them tothis. Just recently, Fiera Capital bought asustainable development bond that raised
awareness for the importance of waterand ocean resources. Earlier, the Equality Fund bought a private placement in
Canadian dollars to raise awareness forgender equality. And Fukoku Life highlighted support for digital education during Covid.
Day, Sustainabonds: What do you
make of where we are in terms of thegreen and sustainable bond market?
While growth has been impressive,
volumes are still short of what someobservers say is required. Are you encouraged? What needs to be done tofurther develop it?
6 SUSTAINABONDS.COM 5 July 2021

World Bank HQ, Washington, DC

Reichelt, World Bank: This focus on volumes for labelled bond issuance misrepresents the revolution we have seen in thebond market. With labels, we are talking
about just around 1% of the bond market
by volume, but I’ve been saying for sometime now that I don’t think that’s a fair reflection of what is going on — the wholediscussion around labelled bonds has revolutionised how investors look at everything
they invest in, whether it’s labelled or not.
If the planet earth represents the size of theoverall bond market, the relative size of thelabelled bond market is like the moon we
see — it’s tiny. But that isn’t reflective of thesize of “sustainable finance” in the bondmarket — there are many bonds financing
sustainable activities that aren’t captured inlabelled bonds.
What more needs to be done? Again, it
goes back to this issue of transparency anddata. The better issuers get at disclosing the
ESG and impact of their overall activities,
the better information investors have as towhat they’d like to support. With data andtechnology, people are going to be able tofigure out how much of the 99% of the restof the bond market they also consider sustainable.
There are incredible advances in data.
Some investors specialise in scraping andcollating data — although we need to becareful about how they interpret and usethat. We have been speaking to a lot of academics about looking at ways investors caninternalise external costs, so that their investments can be more efficiently allocated.
So the labelled bond market will also
continue to grow, and it plays an incredibly important role in getting issuers tocommunicate their approach throughtheir frameworks and report throughtheir impact reports. Things have to movefaster, of course, but it’s going in the right
direction. l

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