The World Bank has been active in the capital markets since its initial debt offering in 1947. It offers investors Aaa/AAA-rated bonds in different currencies and maturities. Unlike private sector financial institutions, it does not operate with the intention of maximizing profit. The Bank benefits from its financial strength and high credit rating to fund in the capital markets and pass the low interest it pays for its financing to its developing-country borrowers. The profits the Bank generates are used to support the strength of its balance sheet as needed, and sustain the support it provides to its member countries.
World Bank Bonds
Because of its standing in the capital markets and its financial strength, the IBRD was able to borrow these large volumes on very favorable terms despite volatile market conditions. The Bank’s strength is based on the IBRD’s prudent financial policies and practices, which help maintain its triple-A credit rating.
The IBRD’s equity primarily comprises paid-in capital and reserves. Under the terms of the general and selective capital increase resolutions approved by the Board of Governors on March 16, 2011, subscribed capital is expected to increase by $86.2 billion, of which $5.1 billion will be paid
The IBRD, known as “World Bank” in the capital markets, as it is the issuer of World Bank bonds, obtains most of its funds by issuing bonds in international capital markets. In fiscal 2012, it raised $38.4 billion ($29 billion in fiscal 2011) by issuing bonds in 23 currencies. Investors that buy World Bank bonds help finance the Bank’s activities in borrowing member countries—including projects in health and education, fighting corruption, boosting agricultural production, building roads and ports, and protecting the environment—and contribute to the poorest countries through donations made by the IBRD to the International Development Association (IDA).
The World Bank strives to build a broad investor base around the world. Investment strategies that integrate social and environmental criteria into investment decisions are becoming increasingly popular.
“Sustainable investing” is one of many terms used to describe strategies that aim to maximize social and environmental good and financial returns. The World Bank’s mission to fight poverty in a sustainable way, through education, health, and environment, make World Bank bonds suitable for investors with such an investment strategy.
The World Bank’s borrowing strategy includes creating customized and regionally focused investment products that combine financial and social returns. Below are a few examples.
The first World Bank Green Bonds were offered in 2008, when the World Bank and SEB designed the product to meet specific demand from Swedish pension funds. The proceeds raised support low-carbon growth in borrowing member countries and help countries adapt to the effects of climate change. Since the inaugural issue in 2008, the World Bank has issued over $3 billion in green bonds through 50 transactions and 17 currencies.
The first fund comprised principally of World Bank bonds in a variety of emerging market currencies; it is managed by Nikko Asset Management. The fund was launched in 2007 and offers Japanese investors the opportunity to participate in a diversified emerging market investm
ent portfolio that will support the mission of the World Bank.
Besides the World Supporter Fund, other funds have been set up that contain primarily World Bank bonds and are designed for certain types of investors. Among them is the BOCHK–World Bank Emerging Markets Bond Fund, which was launched in 2012 for investors interested in the first global emerging market currency bond fund launched in Hong Kong with a China-centric investment theme; it is managed by Bank of China (Hong Kong) Limited. There are also two World Bank Green Bond funds that invest primarily in World Bank Green Bonds denominated in emerging market currencies—one for Japanese investors and another for European and Middle Eastern investors; managed by Nikko Asset Management, they were set up in 2010.
These bonds issued in 2008 were the first Uridashi bonds that referenced emission reductions generated from specific projects under the framework defined by the Kyoto Protocol.