Investors Welcome Newly Released World Bank Green Bond Impact Report

The World Bank Group headquarters bldg. in Washington, D.C. – photo source: Wikipedia

Over the past seven years, the World Bank (International Bank for Reconstruction and Development, IBRD) has been engaging with investors to drive growth and innovation in the green bond market.

Green bonds are playing an important role in mobilizing private sector climate finance and there is growing demand for them– new green bond issuances globally more than tripled last year.  The first World Bank Green Bond Impact Report (pdf)responds to investor interest for more clarity on the environmental and social benefits of their investments in this expanding market.

“Impact reporting is a key differentiator in validating green investments,” said Ashley Schulten, Director, Portfolio Manager at Blackrock. “As more investors seek to achieve environmental outcomes, we need to be able to answer the question posed: how do these investments benefit the environment? This first-of-its-kind reporting template and guide that IBRD has put forth helps create market standards for disclosure of quantifiable impact measures. Recognizing the challenges in this space, we are confident this template will further the dialogue across the myriad stakeholders and bring greater clarity and transparency for institutional investors.�?

The Green Bond Impact Report presents select indicators of environmental and social impacts expected from eligible projects that help World Bank country clients adapt to and mitigate the effects of climate change. It also outlines some of the challenges in the approaches for impact measurement and reporting to caution investors about the interpretation and comparability of impacts. Recognizing its evolving nature, improved impact reporting is an important part of green bonds’ additional value.

“As an investor, Zurich wants to better understand how investments translate into social and environmental outcomes. With green bonds in particular, it’s the impact that makes all the difference,�? said Manuel Lewin, Head of Responsible Investment of Zurich Insurance Group. “The impact reporting pioneered by World Bank and others is setting a standard, and may just give ‘value creation’ a whole new meaning.�?

Showing the impact of projects in the World Bank’s member countries

The World Bank has issued 100 green bonds in 18 currencies, raising the equivalent of US$8.4 billion. As of June 30, 2015, proceeds of these bonds have been allocated to support the financing of 77 green bond eligible projects with commitments totaling US$13.7 billion.

These projects have been selected based on defined green bond eligibility criteria and span a range of sectors across the world, including renewable energy, energy efficiency, transport, water and agriculture.  The environmental and social impacts of these projects are expected to be far-reaching, covering both mitigation and adaptation needs.

In China, for example, two energy efficiency projects in industry are estimated to reduce 12.6 million tons of CO2 eq. annually, which is the equivalent to taking 2.7 million passenger vehicles off the road each year. Meanwhile in Mexico, a project to improve forest management is expected to reduce deforestation and forest degradation in 1.6 million hectares of forest (pdf) – slightly more than the size of the US State of Connecticut – and benefit 4,000 forest communities.

There are many more examples that show the scope and scale of expected impact of the 77 projects described in the Green Bonds Impact Report, and the detail of the indicators is an effort to disclose meaningful and quantifiable impact measures.

Collaborating with investors and other issuers

In preparing this first report, the World Bank worked with investors and other issuers to select tangible indicators that could resonate with a broad audience.  For example, upon the specific request of an investor, the report mentions CO2 emission reductions in terms of equivalent number of cars taken off the road, drawing a more vivid picture of the expected impact of these projects.

Similarly, other investors asked for inclusion of results related to services to the poor and other social benefits to the population in need.  For a project in Indonesia (pdf), the impact of a water management project is explained as improving crop productivity and irrigation efficiency, which will benefit 500,000 households.

This report is also part of a broader effort by the World Bank to coordinate harmonization of impact measurement and reporting (pdf) in cooperation with other multilaterals, as follows a request made to the World Bank by green bond investors looking to compare reports. The reporting approach applied in this report was developed in collaboration with the African Development Bank (AfDB), the European Investment Bank (EIB), and the International Finance Corporation (IFC), including reporting on the core indicators proposed for two sectors – energy efficiency and renewable energy.

“The World Bank Green Bond Impact Report establishes yet another benchmark for the rapidly-emerging green bond industry,�? said Mark Regier, Vice President of Stewardship Investing at Praxis Mutual Funds. “Their work on harmonization provides an example to other issuers and will be deeply appreciated by green bond investors around the world. We are deeply grateful for the vision and commitment the World Bank has shown in leading the growth of the green bond sector.”

Courtesy of The World Bank, © 2015 The World Bank Group