83981 Green Bond FIFTH ANNUAL INVESTOR UPDATE 2013 “Climate change is not just FAQs Why did the World Bank an environmental challenge. create the green bond? It is a fundamental threat to Investors concerned with the economic development and effects of climate change approached the World the fight against poverty.” Bank asking how they could make a difference with their Jim Yong Kim investments. Developing the President, The World Bank Group green bond was an opportunity to create a triple-A rated fixed- income product for investors to support climate solutions and help mobilize private sector financing for low-carbon growth. How did the World Bank come up with the criteria for eligible green bond projects? In This Issue The World Bank worked with Photos (From Top): © The World Bank; © Yang Aijun/The World Bank; © Curt Carnemark/The World Bank investors and recommended key project types or criteria New Developments that would support low-carbon World Bank's Largest Transaction Brings development. The criteria then underwent an independent Total Raised to US$4 Billion │ Page 2 third party review by the Center for International Climate and Illustrative Green Projects │ Page 3 Environmental Research at the University of Oslo (CICERO). Understanding the Green CICERO concurred that, Bond Project Cycle │ Page 4 combined with the governance structure of the World Bank and safeguards for its projects, the Plus: criteria provided a sound basis for selecting climate-friendly "Reflections Five Years On" by projects. Heike Reichelt, Head of Investor Relations and New Product How often does the World Bank issue green bonds? Development, World Bank This depends on demand from Treasury │ Page 2 investors, market developments, and pace of disbursements for What Investors Said │ Page 4 eligible projects. 1 THE WORLD BANK GREEN BOND │ FIFTH ANNUAL INVESTOR UPDATE 2013 WORLD BANK GREEN BOND ISSUANCES New Developments World Bank Green Bonds World Bank's Largest Reflections Five Years On* Heike Reichelt, Head of Investor Relations Transaction Brings Total The World Bank Treasury As countries move toward a low-carbon, climate resilient future, the appetite Raised to US$4 Billion for innovative climate finance is growing. One way to fill this financing need is through the capital markets. The World Bank’s green bonds, first launched in 2008, have been recognized as a catalyst for the growing market of climate On August 9, 2013, the World Bank launched a USD 550 million 2-year fixed rate bonds. This market is on its way to becoming an important source of funding World Bank Green Bond which was placed with 17 investors, including AP2, AP3, for economies to grow in a clean and sustainable manner. Blackrock, California State Treasurer’s Office, CalSTRs, Everence, Nikko Asset A sampling of expected project results — over 165,000 tons of carbon Management, Pax World, SEB Wealth, SSgA, TIAA-CREF, and Trillium Asset dioxide equivalent emission reduction benefits per year in Belarus, and Management. The lead order for this transaction was from the California State 800,000 tons per year in China, reducing vulnerability to climate-related Treasurer’s Office. flooding and water scarcity flood events for about 500,000 farmer Not only is this transaction a milestone because it is the largest World Bank Green households in Indonesia, and producing 6MWhs of electricity out of a landfill Bond transaction issued to date, but it also brings the total amount raised in green in Jordan — highlights the crucial role green bonds and other innovative bonds to US$4 billion. Morgan Stanley and SEB are the joint-lead managers for this funding mechanisms could play in financing the fight against climate change. bond. Over the last year, other World Bank Green Bonds have also distributed by Daiwa Securities, HSBC, JP Morgan, and SEB. More players in the market See the full press release on this transaction at http://treasury.worldbank.org/cmd/ We are seeing a growing number of issuers in the market and increasing htm/USD550MillionGreenBonds.html. bond sizes. For example, this year International Finance Corporation’s US$1 billion green bond and European Investment Bank’s EUR 650 Other New Developments million climate awareness bond generated a lot of media attention. Others, including the African Development Bank, European Bank for Reconstruction Nikko Asset Management's World Bank Green Funds continue to raise institutional and Development, and Nordic Investment Bank have also marketed green investors’ interest and awareness of climate change challenges. Since inception in bonds. Government agencies like the Export Import Bank of Korea, and 2010, assets have been raised from a variety of investors, including those focusing a few months ago, the first US municipality (State of Massachusetts) also on project financing and impact investing. issued green bonds modeled after World Bank green bonds. If you include In the US, Nikko AM's World Bank's Green Strategy has attracted assets from structured project finance and securitization, then, according to the Climate various foundations including non-profits. Notable investors include Silicon Valley Bond Initiative, more than a thousand bonds have been issued, generating Community Foundation, Alternative Bank Schweiz AG, and Rathbone Green Bank. hundreds of billions of dollars for climate finance. World Bank Green Bonds have been included on the Morgan Stanley Wealth On the investor side, US pension funds like TIAA-Cref and large asset Management Investing with Impact Platform – a platform that promotes an managers like Blackrock and Deutsche Asset and Wealth Management investment approach designed to support specific social and environmental benefits recently joined the market. Several intermediaries joined SEB to play a without compromising financial performance potential. pioneering role including Bank of America Merrill Lynch, Citibank, Credit Photo: © Urvi Mehta/The World Bank Agricole, Daiwa, HSBC, JP Morgan, Morgan Stanley, TD Securities, and The Green Century Balanced Fund is an actively managed fund comprised of Westpac. stocks and bonds that supports well-managed companies that strive to maximize their environmental advantages and minimize their environmental risks. Trillium Green bonds are an important step toward filling the financing gap and Asset Management, LLC purchased World Bank Green Bonds for this fund. The spurring additional private sector investment – especially as the market Green Century quarterly newsletter published an article in August 2013 entitled, continues to grow and expand to different products. "Green Bonds in a Changing Market,” which provided an overview about the Green *An excerpt taken from a blog article published on August 28, 2013, originally titled, Century Balanced Fund, and highlighted World Bank Green Bonds that are part “World Bank Green Bonds Surpass US$4 Billion Mark — Reflections Five Years On.” of the fund. View the article here: http://greencentury.com/green-bonds-in-a- The full text can be found here: https://blogs.worldbank.org/climatechange/world- changing-market-world-bank/. This article was picked up by other publications, bank-green-bonds-surpass-us4-billion-mark-reflections-five-years. including Responsible Investor. Green Project Portfolio Breakdown by Geography and Sector FY2013 BY GEOGRAPHY BY SECTOR 2 THE WORLD BANK GREEN BOND │ FIFTH ANNUAL INVESTOR UPDATE 2013 GREEN PROJECTS Noteworthy Green Projects World Bank Green Bonds have been supporting projects in 19 countries. A few select project stories in three countries are featured below. For a list with more projects, please see http://treasury.worldbank.org/cmd/htm/MoreGreenProjects.html. Indonesia — Water Resources and Irrigation China Management Program 2 IBRD Financing: US$150 million Water resources management and irrigation play an important role in Indonesia's water and food security (the bulk of grain crops are from irrigated areas). Though Indonesia is in general a water rich country, climate change is increasing spatial and seasonal variation of water availability. This, combined with high pressure on land and water resources from urbanization and economic development, is leading to more floods, landslides, and less water available during dry seasons. This project builds on the support of the first program approved in 2003 by developing capacity and infrastructure to improve river basin and irrigation management in selected areas of the country. The project is expected to benefit 500,000 farmer households from more reliable and efficient irrigation water helping them produce 15% more crops. Better water management is also expected in 12 river basins. China — Shandong Energy Efficiency For details, go to http://www.worldbank.org/projects and IBRD Financing: US$150 million search by project ID number P114348, or click here. China's goal is to reduce carbon dioxide intensity (CO2 per unit of GDP) by 40-45% between 2005 and 2020. In addition to Indonesia promoting non-fossil fuels, it has launched ambitious programs for energy conservation, which are being implemented by China's 30 provincial governments. The project's purpose is to support Shandong Province — the second largest province in China with a population of 94 million — with energy efficiency programs focusing on leasing and Photos (From Top): © Curt Carnemark/The World Bank; © iStock by Getty Images; © Simone D. McCourtie/The World Bank performance contracting for the industrial sector, financing for biomass electricity (from corn and wheat stalk), and building a heat power plant. The biomass based heat and power generation facility is expected to provide 165 GWh of renewable energy to the grid. For details, go to http://www.worldbank.org/projects and search by project ID number P114069. For details, click here. Turkey — Update on Private Sector Renewable Turkey Energy and Energy Efficiency Project IBRD Financing: US$500 million World Bank Green Bond Investor Update (2011) included a project designed to reduce greenhouse gas emissions by increasing privately owned and operated energy production from indigenous renewable sources and enhance energy efficiency investments in industries such as iron and steel. As of May 2013, the investments have already reduced 1,480,000 tons of carbon dioxide per year through 29 energy efficient projects and 44 renewable energy projects including solar, geothermal, and small hydropower plants. View a slideshow of Turkey's low-carbon investments, which include IBRD's contribution here: http://www.worldbank.org/en/news/ video/2013/05/30/turkey-renewable-energy-slideshow For details, go to http://www.worldbank.org/projects and search by project ID number P112578, or click here. 3 THE WORLD BANK GREEN BOND │ FIFTH ANNUAL INVESTOR UPDATE 2013 GREEN BOND PROJECT CYCLE Understanding the World Bank Green Bond Green Bond Project Cycle Project Selection Criteria The lifecycle of a project financed by the World Bank (IBRD) follows Examples of Eligible Mitigation Projects: six stages as shown below. World Bank-financed projects that • Solar and wind installations; • Funding for new technologies that permit significant reductions in meet the green bond criteria follow the same stages, including greenhouse gas (GHG) emissions; the due diligence and monitoring process as other World Bank- • Rehabilitation of power plants and transmission facilities to reduce financed projects. The green bond cycle includes additional GHG emissions; steps as shown in the outer circle of the graph below. Early on, • Greater efficiency in transportation, including fuel switching and mass transport; environmental specialists review the project pipeline as reflected in • Waste management (methane emissions) and construction of the country partnership framework described in documents guiding energy-efficient buildings; IBRD's work with a member country. • Carbon reduction through reforestation and avoided deforestation. The Project Selection Criteria (see box on the right) are applied Examples of Eligible Adaptation Projects: to screen projects resulting in a list of eligible mitigation and • Protection against flooding (including reforestation and watershed management); adaptation projects. Once approved, these projects disburse over • Food security improvement and implementing stress-resilient several years during the implementation stage. Corresponding agricultural systems (which slow down deforestation); amounts are deducted on a quarterly basis from the account • Sustainable forest management and avoided deforestation. created to support the allocation of World Bank Green Bond proceeds to eligible projects. Go to http://www.worldbank.org/projectcycle for more What Investors Said More World Bank information on the World Bank project cycle. “The World Bank has established Green Bond Investors industry leading practices that • Adlerbert Research Foundation provide a foundation for this • AP2 - Second Swedish National Pension Fund important and evolving market. • AP3 - Third Swedish National Pension Fund Competitive pricing and coupon • Blackrock  rates, USD benchmark size • California State Treasurer’s Office issuances, ring-fencing of the proceeds, project transparency, • CalSTRS impact reporting, and a third party • Calvert Investments opinion are the types of practices • Church of Sweden that make the World Bank Green • Deutsche Asset & Wealth Management Bonds attractive for our clients.” • Everence Financial Chad Spitler • FMO (Netherlands Development Finance Co.) Global Chief Operating Officer for the • LF Liv Corporate Governance & Responsible Investment Team at Blackrock • MISTRA • New York Common Retirement Fund “We invested in World Bank Green • Nikko Asset Management  Bonds for our socially responsible • Pax World Balanced Fund total return mandates because • Rathbone Greenbank we believe they offer attractive • Sarasin relative value along with direct • SEB Ethos rantefund  and measureable social impact • SEB Fonden – and are an excellent example of the ‘double-bottom line' our • SEB TryggLiv investors are looking for. The • Skandia Liv  liquidity and high quality of the • Sonen bonds were important factors to • State Street Global Advisors  us in deciding to participate.” • TIAA-CREF  Stephen M. Liberatore, CFA • Trillium Asset Management, LLC Managing Director and Fixed-Income • UN Joint Staff Pension Fund Portfolio Manager for TIAA-CREF • WWF-Sweden (Världsnaturfonden) © World Bank Treasury, Capital Markets Department • ZKB (Zürcher Kantonalbank) About the World Bank: The World Bank (International Bank for Reconstruction and Development, IBRD), DISCLAIMER: This investor update has been prepared by the World Bank (International Bank for Reconstruction and Development, rated Aaa/AAA (Moody’s/S&P), operates as a global development cooperative owned by 188 member IBRD) for information purposes only, and the IBRD makes no representation, warranty, or assurance of any kind, express or implied, as countries. It provides its members with financing, expertise, and coordination services so they can achieve to the accuracy or completeness of any of the information contained herein. This newsletter may include information relating to certain equitable and sustainable economic growth in their national economies and find effective solutions to IBRD securities. Any such information is provided only for general informational purposes and does not constitute an offer to sell or a pressing regional and global economic and environmental problems. solicitation of an offer to buy any IBRD securities. The securities mentioned herein may not be eligible for sale in certain jurisdictions or to certain persons. GENERAL INQUIRIES: debtsecurities@worldbank.org INVESTOR RELATIONS, Capital Markets Department 1818 H Street NW, MSN C7-710, Washington, DC 20433, USA Tel: +1 202 477 2880 / Fax: +1 202 522 7450 Published in October 2013 Web: http://treasury.worldbank.org/greenbonds 4 THE WORLD BANK GREEN BOND │ FIFTH ANNUAL INVESTOR UPDATE 2013 Please join in to make a difference. Think before you print.