A dangerously warming planet is not just an environmental challenge; it is an acute threat to global development. The recent report from the Intergovernmental Panel on Climate Change makes the stakes all too clear: without immediate action, the impacts of climate change will grow only more devastating in the years ahead.
Climate change also presents an investment opportunity for the private sector. Trillions of dollars are required to address the crisis and while opportunities in emerging markets are vast, the current level of investment is just a fraction of the capital that could be deployed.
The global capital market has a significant role to play in addressing climate change and achieving other sustainable development goals. The debt market in particular has seen major developments in terms of product innovations that contribute to a better planet. Sustainable bonds are effective instruments to mobilize capital from bond investors at scale and channel financing towards projects that make a positive impact on the climate and society.
As the largest global development institution focuses on the private sector in emerging markets, IFC is particularly well positioned to help develop the sustainable bond market in more ways than one. At the same time, we also develop viable, bankable projects across emerging markets to attract private sector investment.
Financing sustainable development through IFC’s Green and Social Bond Programs
IFC’s funding program of up to $14 billion a year finances our loan investments in projects and companies in emerging markets. These must all adhere to stringent ESG standards and our Sustainability Framework which help our clients do business in a sustainable way.
A subset of our funding is issued through green bonds and social bonds that finance select eligible projects from our climate business portfolio and projects that aim to alleviate social issues. Both products offer vast opportunities to channel significant amounts of capital towards sustainable development. At IFC, we encourage the development of the sustainable bond market through our own funding program and by supporting our clients in various ways.
Spurring the green bond market
IFC’s Green Bond Program offers fixed income investors an opportunity to support climate-related projects and generate a financial return at the same time. We were the first issuer to come to the market with a benchmark-sized green bond of US$ 1 billion in 2013—the largest green bond ever issued at the time—and another US$1 billion green bond issuance in the same year. These transactions showed that green bonds are scalable products that appeal to investors worldwide. As of today, IFC has issued 178 green bonds in 20 currencies and in a variety of formats amounting to over US$10.5 billion. Going into the next decade, IFC’s Green Bond Program recently received a new Second Party Opinion from CICERO.
In addition to its own green bond issuance activities, IFC is an investor and provider of advisory services, technical assistance, and risk mitigation instruments to its clients in emerging markets.
We play an important role as anchor investor in green bonds issued by first time issuers, preparing them for future and repeat issuances. For example, in August 2021, IFC invested US$100 million in Egypt’s first private sector green bond to help unlock finance for climate-smart projects and support the country’s transition to a greener economy. The bond was issued by Egypt’s Commercial International Bank who will use the proceeds to increase lending to businesses that want to invest in eco-friendly initiatives, including green buildings, renewable energy and energy efficiency—sectors which are still nascent in Egypt.
Additionally, IFC launched the Amundi Planet EGO Fund—the world’s largest green bond fund in emerging markets that invests in emerging market green bonds issued by financial institutions. Through the Green Bond Technical Assistance Program (GB-TAP) we provide trainings and resources to expand the capacity of such financial institutions to issue green bonds. The Real Economy Green Investment Opportunity Fund was launched with HSBC Global Asset Management to finance issuances from non-financial companies, an important new class of borrowers to the green bond market. Together, these funds have raised over US$2.5 billion for investments in financial institutions and the real sector.
IFC has led work on standard setting initiatives in the green bond market and industry-specific guidance that has helped create climate business opportunities across the world. For example, we have helped draft the Green Bond Principles and currently serve as Chair of the Executive Committee of the Principles.
We are also ramping up our sustainability-linked financing which is a more recent innovation in the sustainable finance world. For example, in September 2021, IFC made an anchor investment of 150 million Singapore dollars in a sustainability-linked bond issued by an energy and urban development company in Asia. This investment was valuable in crowding in investor participation and it also marked IFC’s first investment in a sustainability-linked bond.
Supporting social projects in emerging markets
While addressing climate change is a top priority, channeling financing to projects that focus on underserved people and address access to essential goods and service is equally important. This is where IFC’s Social Bond Program comes in. Our social bonds support financing for women-owned businesses, projects that benefit underserved populations in emerging markets, as well as other projects that are stipulated in the Social Bond Principles, such as healthcare-related projects.
The Program was launched in 2017 when IFC issued a US$500 million social bond. Notably, following IFC’s announcement of its US$8 billion COVID-19 fact-track facility to support existing clients, we issued a US$1 billion social bond in March 2020—our largest social bond to date. Most recently, in October 2021, we issued a social Floating Rate Note of US$500 million which marked the first social bond issued using the new reference rate—the Secured Overnight Financing Rate (SOFR)—as an alternative to LIBOR. As of today, IFC has issued US$4.4 billion through 67 social bonds.Clearly, sustainable bonds attract significant amounts of capital as evidenced by regular oversubscription of issuances. Environmental Finance recently reported that the outstanding volume of sustainable bonds has reached the $2 trillion milestone, however, this still only makes up a small portion of the global bond market. We can achieve financing at scale when we crowd in more issuers and investors, develop more bankable green and social projects, especially in emerging markets, and ensure integrity at the same time.
