Connecting Investors with Purpose: Harnessing Capital Markets for the SDGs
Photo by IISD/ENB
story highlights

The World Bank has focused on connecting capital markets to our mission since we were founded, including through our funding program.

All IBRD bonds support sustainable development, but we also use our bonds to raise awareness for specific priorities.

The SDG-linked bonds that we issue are a powerful tool to introduce investors to the SDGs, and they also highlight companies that are supporting them.

Speaking at the London School of Economics in April, World Bank President Jim Kim laid out a new strategic direction for development finance: he called on the development community to find win-win outcomes by connecting capital seeking reasonable returns with developing countries’ needs to maximize sustainable investments.

This shift in thinking is driven on the one hand by the magnitude of the challenges—from climate change to lack of access to education, health, and sustainable infrastructure —and on the other hand by the realities of the global economy, where yields are low. By acting as honest brokers between capital and development needs, we can turn the challenges into an opportunity for everyone. And we will have a much better chance of achieving the Sustainable Development Goals (SDGs)— a set of 17 goals designed to guide international cooperation to achieve sustainable development, end poverty, ensure healthy lives, end hunger, restore terrestrial ecosystems, build resilient infrastructure, promote decent work for all and much more.

At the World Bank, we have focused on connecting capital markets to our mission since we were founded. One way we do this is through our funding program. Since 1947, we have issued bonds to raise funds for our lending activities. The funding program grows in step with our lending program; there’s been a steep ramp up since the 2009 financial crisis, and last fiscal year we issued a record US$64 billion in bonds.

The value proposition of our bonds to investors is simple and attractive: as a triple-A rated issuer, IBRD has the highest possible credit rating, which reflects its financial strength. Investors know that when they buy our bonds, they are leveraging our 70-year experience of connecting capital markets with projects that improve development outcomes around the world.

All IBRD bonds support sustainable development. But we also use our bonds to raise awareness for specific priorities. A good example are green bonds, where issuers raise dedicated funding for climate-friendly investments. IBRD issued the first green bond in 2008 and has since led the development of the market. We have issued over US$10 billion in green bonds.

We are now using a similar approach to raise market awareness for the SDGs. In March, we issued SDG-linked bonds—the first bonds that link the return investors receive to the stock performance of 50 companies that are listed in the Solactive Sustainable Development Goals World Index because they support the SDGs in their operations. The bonds raised US$163 million from investors in France and Italy.

We developed the bonds in partnership with BNP Paribas, because we need to partner with market players to understand investor needs and opportunities. They are a powerful tool to introduce investors to the SDGs, and they also highlight companies that are supporting them.

Clearly, this is only one way to harness markets for development. But there is no question that capital markets can play a key role in promoting sustainability. Looking ahead, we must continue to promote innovation and develop new partnerships to use every financial tool we have to find win-win outcomes for owners of capital and people in developing countries.

related posts