Structured Products for Sustainable Development

Transcription

1 Structured Products for Sustainable Development Focus on Equity-Linked Green Bonds Capital Markets Department Investor Relations 1225 Connecticut Ave NW Washington, DC USA

2 What is The World Bank? An international organization owned by 188 member countries its owners are its clients. Purpose is to end extreme poverty and promote shared prosperity in a sustainable manner. The world s largest source of development finance and expertise. 60 years of financing development projects. About USD 150 billion in loans outstanding in about 80 countries. Largest shareholders are: US, Japan, China, Germany, UK and France; about 10,000 staff in 130 offices most are in the Washington, DC headquarters. International Bank for Reconstruction and Development (IBRD, called World Bank ) is rated AAA/Aaa based on its capital, reserves and prudent financial policies. 1

3 The World Bank Group IBRD IDA IFC MIGA ICSID International Bank for Reconstruction and Development International Development Association International Finance Corporation Multilateral Investment Guarantee Agency International Centre for the Settlement of Investment Disputes Lends to governments of middle-income and creditworthy lowincome countries. Provides interest-free loans called credits and grants to governments of the poorest countries Promotes development by financing private sector enterprises in developing countries. Promotes foreign direct investment into developing countries by offering political risk insurance (guarantees) to investors and lenders. Provides international facilities for conciliation and arbitration of investment disputes. Issuer of World Bank (IBRD) Bonds Funds raised from donors Issuer of IFC Bonds IBRD and IFC both issue bonds in the capital markets. They share the same overall development goals, but are legally separate entities. Each entity has its own risk profile and capital structure. 2

4 What We Support Today IBRD Lending by Sector and Region Distribution by Sector (Average shares over FY11-FY15) Distribution by Region (IBRD Commitments in US$ Millions) Agriculture Energy Health & Social Services Public Services & Mgmt Water Education Finance Industry and Trade Transportation South Asia Middle East and North Africa Latin America and the Caribbean Europe and Central Asia East Asia and Pacific Africa 9% 4% 5% 28,000 24,000 18% 24% 5% 14% 13% 8% 20,000 16,000 12,000 8,000 4,000 - FY11 FY12 FY13 FY14 FY15 3

5 Country Partnership Framework Projects follow the World Bank Project Cycle within the Country Partnership Framework to: Contribute to the twin goals (end extreme poverty and promote shared prosperity); Ensure social, environmental and governance (ESG) aspects are covered; Achieve expected outcomes. 4

6 Why Invest with the World Bank? IBRD s Aaa/AAA rating is based on a solid financial structure, conservative financial policies and consistent performance, as well as support and capital backing from its shareholders. Track Record Issuing debt since 1947; triple-a rating for over 50 years. Safety Strong balance sheet as result of prudent financial policies. Funds only extended to sovereigns and for sovereign-guaranteed projects. Loans have always been repaid; no loan write off or capital call. Diversified 188 sovereign shareholders & recognized preferred creditor status. Products Demand-driven funding; offer a wide range of instruments to fulfill various needs of diverse investor groups. All bonds fund the World Bank s sustainable programs aimed at achieving a positive social and / or environmental impact. Development Mandate Provides financial solutions for sustainable and socially equitable economic development to end poverty increase income equality 5

7 Sustainable Investment Focus Investors are incorporating environmental, social and governance criteria in their investment decisions. Because of the overall purpose of the World Bank and our policies, all World Bank bonds are attractive for ESG/SRI investors. The World Bank partners with investors and financial intermediaries to customize sustainable investment-focused products, including for investors concerned with climate change. 6

8 World Bank Funding Volumes Funding volume has grown as a result of financing increased lending volumes following the global financial crises. Annual Funding Volumes Fiscal years , US$ billions * *Projected Note: World Bank fiscal years begin on July 1 st and end on June 30 th 7

9 World Bank Funding Currency Mix Currencies of Issuance in FY2015 US$58 billion total USD 74% OTHER* 6% SGD 2% NZD 3% GBP 2% EUR 9% AUD 2% CAD 2% The World Bank has issued in 57 different currencies since Issued in 21 currencies in FY2015. Has been the first foreign issuer in many currencies: Romanian leu, Uruguayan peso, South Korean won. Investors benefit from currency exposure with triple-a credit risk. *OTHER CURRENCIES: BRL, CNY, COP, INR, JPY, MXN, NGN, NOK, PLN, RUB, SEK, TRY, ZAR, ZMW 8

10 World Bank Funding Product Mix Annual Issuance Fiscal years since 2000; in US$ billions '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 Benchmark/Global Bonds Other Plain Vanilla Bonds Structured Notes Benchmark Bonds, Global Bonds AUD, CAD, EUR, GBP, NOK, NZD, TRY, USD, ZAR Other Plain Vanilla Notes Local / Non-Core Currencies* Structured Notes Callable and puttable Floors or collars Steepeners and R-FRN Equity-linked Commodity-linked Weather and Natural Hedges *Non-Core Currencies: Australian dollar, Brazilian reais, Botswana pula, Canadian dollars, Chilean peso, Chinese renminbi, Colombian peso, Czech koruna, Ghanian cedi, Hong Kong dollar, Hungarian forint, Indian rupee, Japanese yen, Malaysian ringgit, Mexican peso, New Romanian leu, New Turkish lira, New Zealand dollar, Nigerian naira, Norwegian krone, Philippine peso, Polish zloty, Russian ruble, Saudi riyal, Singapore dollar, Slovak koruna, South African rand, South Korean won, Swedish krona, Swiss franc, Thai baht, Turkish lira, Ugandan Shilling, Zambian kwacha 9

11 World Bank Funding Structured Bonds Structured Transactions Represents 20% of the annual funding raised by the World Bank Liquidity Buyback program Listing upon request Design and Customization The World Bank offers customized solutions to investors Execution Reverse inquiries high confidentiality Public transactions Documentation Standard Docs IBRD s GDIF 10

12 World Bank Funding Type of Structures 1 2 Interest Rate linked - Callable fixed, step-ups, zeros - Capped FRN - Range Accruals Equity Index-linked - istoxx Europe ESG - Euro Stoxx, Nikkei or any other major index 3 Currency Basket linked 4 Target Volatility Notes 5 Dynamic Assets Allocation 6 Commodity Linked Products 7 Disaster Risk Transfer Products 11

13 World Bank Green Bonds Same financial terms and risk as other World Bank bonds Key elements of the World Bank s Green Bond Process 1. Defined eligibility criteria (with a second opinion) 2. Established project selection process. 3. Ring-fenced bond proceeds (held in a separate account) earmarked for eligible projects 4. Reporting on projects supported including the positive climate impact Transparency 12

14 The Green Bond Story Developing the World Bank Green Bond Green Fixed Income Investment? Health Green Projects 2007: Swedish & Norwegian public pension funds approach the World Bank through their bank (SEB) Challenges 1. Project Selection, Due Diligence, Monitoring? 2. Project / Country Risk? 3. Liquidity Risk? 4. Financial terms? 5. Transparency? Education Nutrition Social Agriculture Infrastructure Environment? 13

15 The Green Bond Story A Green Bond Market Emerges Investor Intermediaries Issuers Green Projects in borrowing member countries + other Supranationals, Agencies, Corporates, ABS, etc Energy Efficiency Wind Power Solution Transport Efficiency Waste Management 1. World Bank Project Cycle 2. World Bank is AAA/Aaa 3. Bond is Tradable 4. Standard Return & Terms 5. Impact Reporting Reforestation Solar Power Technologies to Reduce GHG Emissions Sustainable Forest Management 14

16 Types of Projects Supported by World Bank Green Bonds Mitigation Solar and wind installations Funding for technologies that result in significant reductions in GHG emissions Rehabilitation of power plants and transmission facilities to reduce GHG emissions Greater efficiency in transportation, including fuel switching and mass transport Waste management (methane emission capture) Energy efficient building construction Reforestation and avoided deforestation Adaptation Protection against extreme events, such as floods and droughts (including reforestation and watershed management) Food security improvement and stressresilient crops (to slow down deforestation) Sustainable forest management and avoided deforestation 15

17 Supporting Sustainable Development Green Bonds - Project Cycle Overlaying Green Bond Process in World Bank Project Cycle: World Bank projects address development challenges while ensuring that social, environmental, and governance (ESG) aspects are covered; Green bond process builds from existing World Bank systems and disclosures. All projects are designed to meet specific development outcomes. 16

18 Green Bond Impact Reporting is Evolving with Investor and MDB Collaboration November 2013: During World Bank Treasury Green Bond Symposium, participants highlight importance of impact reporting and encourage MDBs to harmonize metrics : World Bank collaborates with Blackrock, Zurich Insurance, Ceres Green Bond Working Group investors and others on expectations for impact reporting 2014: World Bank convenes informal working group on impact reporting harmonization (including AfDB, EIB and IFC) to discuss a framework for impact reporting January 2015: World Bank shares draft of its first comprehensive impact report with investors for feedback using agreed framework March 2015 Joint Report: World Bank-lead informal working group publishes Working Towards a Harmonized Framework for Impact Reporting to propose a framework for reporting and core indicators for two sectors: Renewable Energy & Energy Efficiency (RE/EE) July 2015: World Bank Green Bond Impact Report: IBRD publishes its first comprehensive green bond impact report December 2015 and ongoing: larger MDB working group on impact reporting and harmonization includes original informal working group members (AfDB, IBRD, IFC, EIB), plus AfD, ADB, EBRD, FMO, IADB, KfW, NIB, and others, coordinated by EIB. Revised harmonized framework published in December

19 World Bank Green Bond Reporting Individual project documentation Summarized green project slides: 3 Annual Green Bond Newsletters: WorldBankGreenBondNewsletters.html 4 Comprehensive Impact Report: WorldBankGreenBondImpactReport.pdf 18

20 Growth of the Green Bond Market World Bank (IBRD) has issued about USD 9 billion with over 120 green bond transactions in 18 currencies * As of April 30, 2016 Source: Bloomberg, World Bank and other public sources 19

21 World Bank Equity-Linked Green Bonds Since the first equity-linked bond launched in the summer of 2014, the World Bank has raised over US$600 million through 10+ individual bonds linked ESG equity indexes. World Bank s Equity index green bonds are linked to ESG indexes They re offering long durations (10+years) Different pay-outs can be built in the structure They have been bough worldwide and by a well diversified investor representation: Approx. US$200 million was purchased by institutional European investors Approx. US$400 million was placed with retail investors in Europe, the US, and high net worth investors in Asia (Hong Kong, Singapore). istoxx Europe ESG Index-linked Green Bond Summary Terms and Conditions Total Amount: USD$50 million Settlement Date: 3 July 2015 Maturity Date: 3 July 2025 Coupon: Redemption Amount: Zero Coupon 100% + a Supplemental Payment Amount linked to performance of the istoxx Europe ESG Select 30 Index multiplied by a Participation Rate (PR). 20

22 Example World Bank US$600m Green Bond The bonds were placed with 25 investors, including AP2, AP4, Blackrock, Deutsche Bank Treasury, Everence, Mirova, Nikko AM, Nippon Life Insurance, Trillium, UN Joint Staff Pension Fund, and Zürcher Kantonalbank. Several investors highlighted their appreciation for the World Bank s practice to support transparency around its green bond program, as well as the financial characteristics and beneficial climate aspects of World Bank Green Bonds. Total Amount: Summary Terms and Conditions US$600 million Settlement Date: 3 March 2015 Maturity Date: 3 March 2025 Coupon: 2.125% (semi-annual) Europe 28% Americas 39% Pension 11% By Geography By Investor Type Insurance 15% Asia 16% Middle East/North Africa 17% Asset Managers 43% Issue Price: % Lead Managers: Deutsche Bank, Morgan Stanley, SEB Banks / Corporates 31% 21

23 Example World Bank EUR550m Green Bond The bonds were placed with 21 investors, including ACTIAM (formerly SNS AM), Aegon Asset Management, AP2, APG, Barclays Treasury, Blackrock, Caisse Centrale de Reassurance, Ikea Group, Mirova, Natixis Asset Management, Pictet, SEB Asset Management, Standish Mellon Asset Management Company LLC, Zurich Insurance Group and Zwitserleven. By Geography Europe 90% Americas 10% Total Amount: Summary Terms and Conditions EUR550 million Settlement Date: 20 March 2014 Maturity Date: 20 March 2017 Coupon: 0.25% (annual) Issue Price: % Lead Managers: Crédit Agricole CIB, Morgan Stanley, SEB Pension funds 8% Official institutions 9% Insurance companies 19% By Investor Type Bank treasuries / corporates 42% Asset managers 22% 22

24 Green Bonds Potential World Bank Green bonds have raised awareness with financial market participants for the need for private sector financing to tackle the climate challenge and include climate risks and opportunities in their investment decisions. More issuers, are recognizing the benefits of issuing green bonds for business reasons and to enhance their brand and are expanding investment opportunities for investors; retaining integrity is key. Green bonds are catalyzing a development of changing investor expectations in the fixed income markets investors are asking for social and environmental impact for all investments and require information to include this in their investment decisions. We are working with issuers to help them understand the product, its costs and benefits, and with issuers, investors, intermediaries and market participants to create more financial products that support climate change programs. Images: The Clearing/World Bank 23

25 Annex Project Stories 24

26 Brazil Espirito Santo Integrated Sustainable Water Management Project Description Purpose: To improve sustainable water resources management and increase access to sanitation in Brazil. Expected Results (include): Integrated tools for preparedness and response such as a warning system expected to cover 70% of the State s territory. Funds will finance a water treatment plant expected to remove 1,590 tons of BOD per year and provides improved sanitation services for about 164,000 people. Reforestation of 2000 hectares. IBRD Financing: $225 million Development Challenge The project addresses disaster risk linked to flooding by improving metropolitan coordination and planning mechanisms for the management of urban water. Project Description The project also increases the efficiency of water supply services, access to improved sanitation, and wastewater treatment. Furthermore, the project supports improved watershed management and restoration of forests and improve the quality of surface and coastal waters in selected watersheds. World Bank For more information: 25

27 China Eco-Farming Project Description Purpose: To reduce greenhouse gas emissions and deliver economic benefits through biogas systems in rural communities. Expected Results (include): CO 2 eq. emissions in the project area are expected to be reduced by 800,000-1,000,000 tons per year. 400, ,000 rural households benefit with cleaner biogas-based cooking and heating systems. IBRD Financing: US$120 million Country Challenge In China, millions of households rely on the agriculture sector for their livelihood. The agricultural sector, however, has had widespread negative impacts on the environment because of inadequate farming techniques involving misuse of land leading to desertification, over-use of synthetic pesticides and fertilizers without adequate environmental controls. In addition, agriculture is responsible for 50% of China s methane emissions (a potent greenhouse gas). Project Goals This project supports cleaner, healthier farmyard environments, along with the reduction of greenhouse gas emissions through methane capture and combustion to generate energy, and the reduction of burning of coal and firewood. World Bank Steve Harris/World Bank For more information: Video: 26

28 Colombia National Urban Transit Program Description Greater efficiency in urban mass transport Expected Results (include): Reduction of average travel time for low income riders. Reduction of accidents and pollution (including greenhouse gases) associated with bus transport services Increased access to the disabled, and other riders with special needs. IBRD Financing: $300 million 2 nd Add Financing Integrated Mass Transit System $350 million Support to the National Urban Transit Program Country Challenge 75% of Colombia's population currently lives in cities and most of these urban residents rely on the public transportation system. Yet, public transportation is the cause of many of these cities problems, including serious traffic congestion, high incidences of accidents and crime, unhealthy air, and pollutants responsible for 62% of Colombia's carbon emissions. Project Goals. The Colombian government and the World Bank are continuing to work together through the support to the National Urban Transit Program (NUTP). Building on the success of Transmilenio, a rapid bus system in Bogotá, the project is designed to improve transport efficiency and accessibility, reduce fuel use per kilometer, as well as pollutant emissions in five additional cities: Barranquilla, Medellin, Bucaramanga, Cartagena, and Pereira. World Bank For more information: Video ( National Urban Transport Program ):

29 Indonesia Coral Reef Rehabilitation and Management Description Purpose: To help Indonesia protect and sustainably manage its unique coral ecosystems in several selected districts and five provinces in the country. Expected Results (include): Finance projects that support preparation of zoning plans, application of integrated coastal management, sustainable fisheries management in selected fisheries management areas and, piloting community rightsbased approach. Monitoring and evaluation of project performance also evaluated. IBRD Financing: $47.38 million Development Challenge Sustainable management of coral reef resources, associated eco-systems and bio-diversity for the welfare of the communities in seven selected districts of five provinces in the country. Project Description The project helps develop Conservation Areas where fishing will be restricted while providing communities rights to other areas for sustainable fishing and helps them develop income generating activities that are compatible with healthy marine ecosystems. It supports the government efforts in better monitoring and management of its marine conservations areas. Objectives include institutional strengthening for decentralized coral reef management, development of ecosystem-based resources management, strengthening sustainable marine-based economy; and project management, coordination and learning. World Bank For more information: 28

30 Mexico Efficient Lighting and Appliances Description Purpose: To promote the efficient use of energy and to mitigate climate change by increasing the use of energy efficient technologies in the residential sector. Expected Results (include): Cumulative over 5 years (2-phase program): 45.8 million inefficient light bulbs and 1.9 million old and inefficient refrigerators and air conditioners replaced 3.32 million tons of CO 2 eq. emissions reduced cumulatively % electricity saved in residential households. 10,000 GWh cumulative energy savings. IBRD Financing: US$ million Country Challenge About 80% of Mexico's energy comes from fossil fuels (including imported gas). Residential electricity use is growing faster than Mexico s GDP, or about 3.7 percent/year, and accounts for about a quarter of all electricity use. Air conditioning, home appliances, and electronics are expected to be the main growth areas. In response, the government has initiated energy efficiency programs for the residential sector. Project Goals The project financed the Programa Luz Sustentable and the appliance exchange program which supported free exchange of efficient light bulbs and a loan/subsidy program for efficient appliances targeting lower income households World Bank World Bank For more information: Video: 29

31 For more information, contact us: Internet: Phone: Fax: Address: 1225 Connecticut Avenue, NW Washington, DC 20433, USA Pricing Sources Bloomberg Discount Notes IBRD <Govt> <Go> or IBRD <Go>; WBDN <Go> 30

32 Acknowledgements and Disclaimers All photos, graphics and content World Bank This presentation has been prepared by the World Bank (International Bank for Reconstruction and Development, IBRD) for information purposes only, and the IBRD makes no representation, warranty or assurance of any kind, express or implied, as to the accuracy or completeness of any of the information contained herein. No Offer or Solicitation Regarding Securities. This presentation may include information relating to certain IBRD securities. Any such information is provided only for general informational purposes and does not constitute an offer to sell or a solicitation of an offer to buy any IBRD securities. All information relating to securities should be read in conjunction with the appropriate prospectus and any applicable supplement and Final Terms thereto, including the description of the risks with respect to an investment in such securities, which may be substantial and include the loss of principal. The securities mentioned herein may not be eligible for sale in certain jurisdictions or to certain persons. Consult with Advisors. Investors considering purchasing an IBRD security should consult their own financial and legal advisors for information about such security, the risks and investment considerations arising from an investment in such security, the appropriate tools to analyze such investment, and the suitability of such investment to each investor's particular circumstances. No Guarantee as to Financial Results. IBRD does not warrant, guarantee or make any representation or warranties whatsoever, express or implied, or assumes any liability to investors regarding the financial results of the IBRD securities described herein. Each recipient of this presentation is deemed to acknowledge that this presentation is a proprietary document of IBRD and by receipt hereof agrees to treat it as confidential and not disclose it, or permit disclosure of it, to third parties without the prior written consent of the IBRD. All content (including, without limitation, the graphics, icons, and overall appearance of the presentation and its content) are the property of the IBRD. The IBRD does not waive any of its proprietary rights therein including, but not limited to, copyrights, trademarks and other intellectual property rights. 31