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Why did multilateral development banks (MDBs) issue the first green bonds?

Several multilateral banks have issued bonds supporting the financing of “green” projects, including the following:

The African Development Bank (AfDB) serves the development needs of its member countries and issued a first US$500 million green bond in October 2013, building on previous experience with clean energy bonds for the Japanese retail market (Green Bond Program. African Development Bank Group. 2015.) The proceeds are allocated to support the financing of climate change solutions as part of a broader strategy to support inclusive and sustainable growth in Africa.

The European Investment Bank (EIB) issued a €600 million Climate Awareness Bond in 2007 that focused on renewable energy and energy efficiency (The Climate Awareness Bond." European Investment Bank, 1 May 2007.) Instead of a fixed coupon, the bond returns were linked to an equity index (such a bond is commonly referred to in the bond market as "structured"). .

The World Bank (International Bank for Reconstruction and Development or –IBRD–) launched the first labeled green bond in 2008 in the amount of SKr 3.35 billion (approximately US$440 million). (World Bank Treasury, “World Bank and SEB Partner with Scandinavian Institutional Investors to Finance 'Green' Projects, " press release, November 6, 2008)
( World Bank Treasury, “World Bank 'Green Bonds' Increased to SEK 2.7 Billion,” press release, November 14, 2008.) The rationale for this first green bond was threefold:

  • First, it responded to specific demand from Scandinavian pension funds seeking to support climate-focused projects through a simple fixed-income product. It also fit well with IBRD's efforts to cater to investors interested in sustainable and responsible investing (SRI).
  • Second, it supported the World Bank's strategy to introduce innovation in climate finance.
  • Third, by focusing on climate change mitigation and adaptation projects, World Bank Green Bonds helped raise awareness among investors and the financial community about how developing countries can take action on climate change but also stand to be affected by it.

As of the end of June 2015, the World Bank (IBRD) has issued US$8.5 billion in over 100 green bond transactions in 18 currencies, supporting about 70 climate mitigation and adaptation projects around the developing world (World Bank Treasury, “World Bank and SEB Partner with Scandinavian Institutional Investors to Finance 'Green' Projects, " press release, November 6, 2008 ; World Bank Treasury, “World Bank 'Green Bonds' Increased to SEK 2.7 Billion,” press release, November 14, 2008).
("World Bank Green Bonds," World Bank Treasury, accessed July 1, 2015.)

The International Finance Corporation (IFC), also part of the World Bank Group, initially issued green bonds in 2010 at the demand of investors seeking climate-related investments with a fixed income. IFC’s inaugural green bonds were in relatively small sizes to fit the investor appetite at the time. As investors became more engaged in the climate arena, IFC met the growing demand with larger bond sizes, culminating in two US$1 billion three-year green bonds issued in 2013, the largest green bonds in the market at the time. To date, IFC has issued over 37 green bonds, raising US$3.8 billion outstanding in nine currencies. ( "Overview of IFC's Green Bonds," IFC (International Finance Corporation) Treasury, accessed July 1, 2015.) Climate change is a major strategic priority for IFC. Since 2005, IFC has committed more than US$13 billion to climate-smart projects, some of which have been funded by green bonds.

Other multilaterals and agencies that have also issued green bonds include: the Asian Development Bank (ADB) (“ADB Clean Energy Bond 2014.” Asian Development Bank. October 2014), the European Bank for Reconstruction and Development (EBRD) (“EBRD Issues US $250Million “Green Bond”.” European Bank. 11 September 2013) and the Nordic Investment Bank (NIB) (“Environmental Bond.” Nordic Investment Bank. 2012.)