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How do green bonds fit into an issuer’s funding strategy?

Green bonds allow issuers to reach different investors and promote their environmental credentials.

For example, the World Bank (IBRD) designed the green bond as part of its overall bond program to cater to sustainable and responsible investors and promote its support of climate change projects in its borrowing member countries. As a multilateral development cooperative, IBRD offers the same pricing in its lending to all its member countries in lending rates that reflect its total average funding cost plus a percentage spread. Because IBRD green bonds are part of its general funding program, lending rates for projects included in IBRD’s green bond program receive the same treatment as all other IBRD loans.

In the case of IFC, green bonds are aimed at its renewable energy investments and energy efficiency investments.

The World Bank’s Bond Program

The World Bank (IBRD) is a development cooperative owned by 188 member countries and is the original institution of the World Bank Group. The World Bank was created at the end of World War II and issued its first bond in 1947 to raise financing that helped the reconstruction of war-torn Europe. The World Bank’s focus later shifted toward broader economic development to help its borrowing member countries reduce extreme poverty and share prosperity with the bottom 40 percent of the population in income terms.

Today, the World Bank issues a wide range of debt instruments to raise financing for the development programs it supports in borrowing member countries. The World Bank is rated triple-A by Moody’s and Standard & Poor’s based on its solid financial structure, conservative financial policies, and strong capital base. IBRD has a high-quality globally diversified loan portfolio. The loans and financial services are only extended to sovereign governments and projects with sovereign guarantee. For its fiscal year ending June 30, 2015, IBRD outstanding loans and guarantees were US$154 billion, and the total bonds issued were worth a total of US$58 billion equivalent.

International Finance Corporation

IFC is a member of the World Bank Group established in 1956 and owned by 184 member countries. IFC provides loans and equity investment, advisory services, and asset management on a commercial basis. It is the largest global development institution focused exclusively on the private sector in developing countries. Its global portfolio is highly diversified and contains debt and equity exposure in 126 countries and nearly 2,000 companies. By June 30, 2014, investments outstanding totaled US$38 billion.

IFC has a US$84 billion balance sheet and is rated triple-A. It has funded its investments primarily by issuing bonds since 1989. The bond program for 2016 is US$17 billion, to be raised by accessing various markets including green bonds for the additional value of investor diversification. IFC’s green bonds attract new investors and highlight IFC’s work in providing climate-smart solutions to emerging-market private sector clients.

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