On February 14 2013, the International Finance Corporation (IFC), a member of the World Bank and the largest development institution focused on the private sector, issued a $1 billion 3 year green bond. The triple-A-rated green bond has an interest rate set at 3 year US treasuries, which averaged 0.40% from January 1 to February 22 2013, plus 0.015%. IFC will use the bond to finance renewable energy, energy efficiency and projects which reduce GHG emissions in other ways, such as sustainable forestry, in developing countries. The bonds’ green credentials were certified by Cicero, an independent research centre associated with the University of Oslo. In 2012, IFC invested $1.6 billion, more than 10% of their overall annual commitments, in climate related investments.
This is the largest individual green bond issued to date. It was marketed globally and principally bought by socially responsible investment portfolios. Citibank, Morgan Stanley and JP Morgan underwrote the bond. Buyers of the bond included 3M Company, Blackrock, the California State Teachers’ Retirement System (CalSTERS), Calvert Investments, Ford Motor Company and the Washington State Investment Board.
The $174 billion of “green” or “climate” bonds which fully aligned with the principles of the Climate Bonds Initiative in 2012 represent a paltry 0.18% of the $95 trillion global fixed income market. But IFC’s recent issue marks an important milestone in the market’s evolution. The 56 investors were diverse: asset managers accounted for 30% of buyers, corporates 17%, sovereign wealth funds and multilateral organizations 16%, central banks 16%, pension and insurance firms 13%, and banks 8%; and were globally spread: US based investors accounted for 70% of buyers, European and Middle Eastern investors for 25% and the remainder of the bond was bought by Asian based investors. These reflect a broad based appetite for climate friendly asset backed debt from institutional investors despite their low yield.
Image courtesy of MoneyBlogNewz, Flickr
To receive regular Verdantix blog updates, complimentary webinar dates and new research alerts register for our newsletter. To see our latest research, click here.