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SUSTAINABLE DEVELOPMENT BONDS

What You Needto Know About

SUSTAINABLE
DEVELOPMENTBONDSIn 2008, the World Bank Treasury
pioneered green bonds to support
the financing of projects addressing
climate change. Today, the WorldBank issues sustainable development
bonds. To learn about them here
is Heike Reichelt, head of investor
relations and sustainable financefor the World Bank Treasury of theInternational Bank for Reconstruction
and Development (IBRD) and theInternational Development Association(IDA).

2 | ESG Investing

What are sustainable development
bonds and how are they different
from our green bonds?
They are similar: all World Bank bonds
raise funds from investors in the bondmarkets to support the financing ofprojects in developing countries. Withgreen bonds, we communicate toinvestors the positive impact that ourloans make in climate mitigation andadaption projects. With sustainable
development bonds, we are able tocommunicate the positive impact of

the World Bank’s full range of sector
and project lending—all of which,by the way, also incorporate climate
considerations. IBRD, referred to as“World Bank” in the capital markets,
began issuing green bonds almost 15years ago. IDA began issuing bonds in2018 – more information is available on
the IDA website, but my answers will
be focused on IBRD due to its longer
track record.
We launched green bonds toengage investors around the positive

contribution the World Bank was
making in the area of climate change.
We responded to the market’s growinginterest in climate change risk by
providing a bond product that was
simple and fit their portfolios. Our
first green bond in 2008 became thestandard for a market focused onincreasing transparency and investingfor purpose. We communicate theconnection between the funds raised
from investors to an amount equal in
the Bank’s lending for various typesof mitigation projects – such as solar
power – as well as adaptation projects– such as reforestation. We report toinvestors regularly the achievements
made by this World Bank lendingfor climate mitigation and adaption.
Examples for reporting include how
many tons of carbon the projects are
expected to reduce or how manytrees are being planted as part of aproject. Our reporting on sustainable
development bonds is similar, but
we highlight all World Bank activities
instead of carving out a portion. We
show how funds raised in the capital
markets support the financing ofprojects with green and social goals
and show how they relate to theSustainable Development Goals(SDGs), since that’s what investors askto see.
What motivated the World Bank
to issue sustainable development
bonds?
When we first started engaging withinvestors around climate change,
the focus was very much on what
we are doing on renewable energy
and energy efficiency projects. We
also included data and examples inadaptation and resilience. Since then,we have continued to broaden ournarrative to incorporate the full benefitof the World Bank’s work with clients.
In 2015, the world came together toagree on 17 Sustainable Development
Goals for poverty, hunger, health,education, affordable clean energyand more. That same year, countries
adopted the Paris Agreement onclimate change and, in 2016, theWorld Bank Group launched a Climate
Change Action Plan.
The World Bank Group’s Climate
Change Action Plan screens all projects
for climate change risk and focuses
equally on mitigation and climatechange adaptation to build resiliencein people and communities. About
95% of all IBRD projects had climate
financing in our 2021 fiscal year.
Building resilience means improving
people’s lives: better and moreconsistent access to education, health,jobs, water, sanitation, food, energy
and other targets of the SDGs, while
also restoring or protecting the naturalenvironment. While green bonds area great starting point for investors justbeginning in sustainable investing,most of the big institutional investors
that buy our bonds are interested
in supporting the financing ofsustainable activities overall. Investingin sustainability is not just about solar
panels and wind farms. It’s much morethan that. And all projects fundedby the World Bank are focused onsustainability.

"WITH SUSTAINABLE
DEVELOPMENT BONDS,WE ARE ABLE TO
COMMUNICATE THE
POSITIVE IMPACT OFTHE WORLD BANK’SFULL RANGE OFSECTOR AND PROJECTLENDING—ALL OF WHICH,BY THE WAY, ALSOINCORPORATE CLIMATECONSIDERATIONS."
Heike Reichelt
Head of investor relations andsustainable finance for the WorldBank Treasury of the IBRD and IDA
How does it work? Can anyone buysustainable development bonds?
Let me explain and use IBRD bonds
as an example. IBRD is commonlyreferred to as “World Bank” in thecapital markets since it is the oldest
organization in the World Bank Groupand started issuing bonds in 1947.
The World Bank Treasury works withbanks and investors to raise about
US$50-$60 billion per year throughissuing hundreds of bonds. Our bonds
have the highest rating, triple A,giving investors safety and a financial
return while their investments support
development in emerging countries.
Most of our bonds are issued in thewholesale markets, and the buyers aremostly big institutional investors suchas central banks, pension funds, asset
managers and bank treasuries fromdeveloped countries. At times, wemay issue bonds aimed at individual
investors via dedicated networks.
Who can buy them depends on theregulations and practices of eachmarket, and whether an individual is aclient of one of these brokers throughwhom we are issuing bonds. Somepeople might already have invested inour bonds and not know it, because
they may own a mutual fund that holds
our bonds.
How is the money raised from thebonds used?
The money from sustainable
development bonds is the money that
the World Bank uses to support thefinancing of projects through loans
to clients. In our impact reporting,
we show investors how the money
supports the financing of education,
health, sustainable transportation
projects, and so on throughout
our entire portfolio. Our reporting
connects our lending activities to the
Sustainable Development Goals, which
is very important for investors who

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SUSTAINABLE DEVELOPMENT BONDS

use the SDGs as a framework when
they report to their stakeholders. Also,
the process for issuance is describedin Sustainable Development Bondand Green Bond frameworks that arealigned with the Sustainability Bond
Guidelines and Green Bond Principles
published by the International CapitalMarket Association. With somebonds we have launched we havecommunicated with investors about
specific SDGs (e.g., gender equality)
in order to raise awareness aboutdevelopment issues, such as the factthat COVID-19 has disproportionately
affected women, or the importanceof protecting freshwater and saltwater
resources. Overall, we’ve seen
investors’ interest in our projects
grow; they want information about
the individual projects, they want tounderstand where they are and how
they are designed to achieve theirexpected results.
When we engage with investors, we
describe development challenges aswell as how our projects specificallysupport the SDGs. We are happy to

4 | ESG Investingsee investors interested and engaged.
It’s good to share information about
how their investments ultimately help
to make a positive impact. Greenbonds pioneered that concept ina narrow sense and helped set theblueprint for the market; sustainable
development bonds are bringing
that level of impact reporting andtransparency to all projects while
demonstrating to the financial market
that achieving the SDGs cannot not bedone by narrowly focusing on one or afew silos.
What’s next for sustainable
development bonds?
The findings of the new reportby the Intergovernmental Panelon Climate Change drive homethe urgency to climate action. We
have launched an initiative to raiseawareness for the need to integrate
climate change considerations in all
activities and decisions. Tackling theclimate challenge at scale will require
going beyond thinking only about“green” projects to greening entire

economies. We intend to highlight
this message while raising US$10
billion as part of this campaign, andlike all our bonds, support the fundingof projects and programs in our client
countries as they integrate climateconsiderations into their development
to build greener, more sustainableeconomies.

More information
visit www.worldbank.org orWorld Bank Climate Explainer Series
Interview first appeared as part of
the World Bank’s Climate ExplainerSeries