-dik,L 44 ;t En E21 區 eec WHAT ARE ffinqw 4? new 9 THE WORLD BANK il-KULPPIAF Treasurg n y Enablingliifra5tructureinvestment 2 3 wqo 44 FOREWORD The explosive growth of green bonds in the capital markets is increasingly attracting attention from investors. This surge in interest has created a interested in better understanding the demand for accessible information on nature of green bonds. The content will the green bond market. This primer was aim to distinguish green bonds from created in response to this demand and other traditional financial instruments. covers the principles of this relatively It will also provide insight into the new financial instrument. The following potential of green bonds to mobilize intends to serve as a guide for those new sources of climate finance. DISCLAIMERS No Offer or Solicitation Regarding Securities. This document may include references and information relating to certain securities. Any such information is provided only for general informational purposes and does not constitute an offer to sell or a solicitation of an offer to buy any securities. The securities mentioned herein may not be eligible for sale in certain jurisdictions or to certain persons. 5 CHATE I ONDESTADÅN BONDS WHAT IS A BOND AND HOW DOES IT DIFFER FROM OTHER FINANCING OPTIONS? A bond is a form of debt security. A debt security is a legal contract for money owed that can be bought and sold between parties. Entities seeking financing to as fixed-income securities. have two basic options to raise Once purchased from the issuer funds: stocks (equities) and (through financial institutions bonds. Bonds are a form of acting as dealers), bonds can debt, whereas stocks are a form continue to be traded in the of ownership. securities market. Investors in bonds become Investors in stocks, on the creditors of the issuing entity. other hand, purchase a portion They are paid a fixed interest of the issuing firm. Therefore, rate (coupon) and returned the returns of their investment their initial investment fluctuate in accordance with (principal) upon maturity. dividends paid by the issuing Because bonds typically pay a firm and the value of the issuing fixed interest over the maturity firm. Stocks are also traded in period, they are often referred the securities market. 7 HOW DO CREDIT RATINGS WHY DO INVESTORS SOMETIMES RELATE TO THE RISK-RETURN CHOOSE BONDS OVER OTHER FUNDAMENTAL OF INVESTING? INVESTMENT OR SAVING OPPORTUNITIES? Investors seek returns commensurate to the risk of An investor may choose to investment opportunities. invest in the bond market over other alternatives Many investors have mandated thresholds for risk tolerance and often compare risk-adjusted returns to a benchmark or reference. In Fixed-rate bonds offer fixed returns judging risks of various investment over a fixed time, in fixed periodical opportunities, including assessing installments. This generally makes for a the creditworthiness of bond more predictable, less risky investment issuers, investors use their own due than other investment options. This diligence and other sources, such as higher predictability of cash flows credit ratings by the rating agencies makes bonds a good counterbalance (for example, Fitch, Moody's, or to riskier, more volatile elements in an Standard & Poor's). investment portfolio. 8 iI m foi WHAT ARE THE REQUIREMENTS, bond. For example, in December AND WHO CAN ISSUE BONDS? 2014, the Bay Area Toll Authority 0 in northern California issued bonds (PRIVATE AND PUBLIC EXAMPLES) in the amount of US$811.4 million. The bonds have been assigned an "AA/Stable" rating by a credit agency, Issuers of bonds can be private Standard & Poor's. The bonds' compnies supanatonalproceeds will be used to finance companies, supranational and refinance the construction, institutions (such as multilateral improvement, and equipping of the banks), and public entities bridges and toll roads in the San (municipal, state, or federal). Corporate Bonds Issuing bonds is a complex process involving several steps to meet A bond issued by a company is referred requirements of specific markets and to as a corporate bond. Corporate bonds countries of issuance. Figures 1 and 2 can either be designed for institutional present examples of corporate bond investors (insurance companies, banks, issuance requirements in Brazil and hedge funds, and the like) or retail China, respectively. investors. For example, in late 2014, heart-rhythm device maker Medtronic Entities issuing bonds must disclose Inc. issued a US$17 billion corporate financial information to regulators, bond to help fund its acquisition of a rating agencies, and investors. Bond surgical gear maker. issuers appoint investment banks as "underwriters"to help them meet Multilateral Development Bank these requirements, drawing on their Bonds expertise of bond markets, government regulations, and other related factors. Other types of issuers include multilateral development banks (MDBs) and other Government Bonds supranationals or international agencies. For example, the World Bank, an MDB A bond issued by a public that issued its first bond in 1947, recently governmental entity, such as a city issued a landmark US$4 billion 10-year or state, to finance its activities is transaction, raising funds from different commonly referred to as a municipal types of investors all over the world. Financial terms presented in italics are defined in the Glossary on pages 50-51. i the a 9 ISSUING BONDS Figure 1 Issuing Bonds in Brazil IN BRAZIL Source: Leal, Ricardo P. C., and Andre Carvalhal da Silva, "The Development of the Brazilian Bond Market," IADB (Inter-American Development Bank) paper, IADB, Washington, DC, October 2006. 00 N0 Find underwriter Register with the CVM Due diligence Brazil's Securities and Exchange Commission (CVM). 0 0 0 as / X Publish financials Get approved If denied Official letter Can appeal denial. of registration issued. 0 o 0 Get rated (optional) Issue bond Stay listed Is required in prudential And list bond in the Sao Continue complying regulations for closed Paulo Stock Exchange. with requirements. pension funds. 10 Figure 2 ISSUING BONDS Issuing Bonds in China Sources: ADB (Asian Development Bank), ASEAN+3 IN CHINA Bond Market Guide. (Manila: ADB, 2012); "Introduction on Corporate Bonds," Shanghai Stock Exchange, accessed Nov. 11, 2014, http://english.sse. com.cn/listing/bonds/corporate/overview/. o o o Choose underwriter Register with CSRC Decision (China Securities Regulatory Verification and Commission). approval system. 0. 011 Size of the bond Get rated Information disclosure Accumulated balance cannot Eight major credit rating Prospectus, issuance notes, exceed 40% of the net assets agencies exist. China's Central financial report, and audit of the company. Bank serves as the main report, and so on. supervisory authority. 0 00 Apply for listing Issue bond Purpose No unified rules exist for the China Securities Depository Funds must be invested in listing of Shanghai Stock Exchange and Clearing Corporation conformity with national industry and Shenzhen Stock Exchange. Limited is the registration and policy, and filed with CSRC. settlement institution. WHAT IS THE CONTEXT OF BONDS IN GLOBAL FINANCIAL MARKETS? Globally, financial markets- The largest markets were in the United States both equity and debt-were (32 percent), Western Europe (30 percent), worth US$212 trillion in Japan (12 percent), and other regions, as 2010, with bonds reaching shown in figure 3. Emerging financial markets about US$93 trillion or 44 account for about 17 percent and are growing percent of the total. fastest, particularly in China and India. Figure 3 Composition of Global Financial Markets, 2010. United States 31.9% Western Europe 30.1% US$212 trillion US$56 trillion- Stock market capitalization US$66 trillion- Loans outstanding Other Asia 1.3% US$93 trillion- India 1.5% Bonds outstanding Middle East and Africa 2.0% CEE and CIS* 2.5% Latin America 2.7% China 7.6% Japan 11.7% Other Developed 8.7% 2010 Source: Roxburgh, Charles, Susan Lund, and John Piotrowski, "Mapping Global Capital Markets 2011," McKinsey Global Institute Updated Research (McKinsey & Company, August 2011), based on data from the Bank for International Settlements, Dealogic, Securities Industry and Financial Markets Association (SIFMA), Standard & Poor's, and McKinsey Global Banking Pools. * CEE and CIS = Central and Eastern Europe and Commonwealth of Independent States. 12 긔 HOW DO EMERGING FINANCIAL Map 1 MARKETS COMPARE? Financial and Securities Markets, Selected Asia Pacific and Latin America are the Geographical Regions, 2014 largest emerging financial markets. The total value (market capitalization) of their equity market is 20-30 times higher, and the size of their bond markets 4-5 times bigger, than those of Africa and the Middle East, and the Russian Federation, Eastern Europe, and Central Asia combined. C:i C= C14 f... International Nonfinancial Financial Government Stocks In 2014 US$, billions Source: Background map: IBRD WLD41787, August 2015. Cn Data from Bank for International Settlements, BIS Quarterly Review, September 2014 (Basel: BIS, 2014); World Federation of Exchanges LATIN AMERICA database (http://www.world- exchanges.org/statistics); Financial L Times database (http://markets. C/13 C/1) ft.com/research). CD Note: Equities are the total market C/13 capitalization of that particular region's developing countries. Bonds are reported as amounts outstanding. 14 C.{& 《－」二豐 民呂 15 ASIA PACIFIC BOND MARKET Asia Pacific's bond market is the largest among emerging nations in large part because of China's growing US$4.3 trillion bond market. The region also contains the highest concentration of developing countries with growing domestic and international bond markets. Map 2 Asia Pacific Bond Market, Setected cy- Countries, 2013 -14 Cn Cn INDIA BBB- STABLE 11 2013 2014 Source: Background map: IBRD SOA41789, August 2015. @World Batik. Permission required for rCUse. Data from Bank for International Settlements, BIS Quarterly Review, September 2014 (Basel: BIS, 2014); Standard & Poor's credit rating as of Sept. 28, 2014. Note: All values are in US$, billions. C2% Bonds are reported as amounts M Cn outstanding. Cn International MALAYSIA A- STABLE Nonfinancial H Financial 2013 2014 Government 16 øl- AA- STABLE vC= THAILAND BBB+ STABLE 2013 2014 PHILLIPPINES BBB STABLE 2013 2014 W> INDONESIA BB+ STABLE 2013 2014 2013 2014 17 L_ 4.-3 MEXICO BB+ STABLE 2013 2014 LATIN AMERICAN BOND MARKET Some countries in the Latin American region have fast-growing domestic debt markets and sizable international investor participation. Map 3 Latin American Bond Market, Selected PR 2 %Z PERU Countries, 2013-14 n BBB+ STABLE Source: - - Background map: IBRD LAC41788, August 2013 2014 2015. @World Bank. Permission required for reuse. Data from Bank for International Settlements, BIS Quarterly Review, September 2014 (Basel: BIS, 2014); Standard & Poor's credit rating as of Sept. 28, 2014. Note: All values are in US$, billions. Bonds are reported as amounts outstanding. International CHILE AA- STABLE Nonfinancial A S B EFinancial 2013 2014 Government 18 Cf) cnJ cli~ COLOMBIA BBB31 STABLE 2013 2014 13132013 2014L C21 C= C 2013 2014 2013 2014 19 REFERENCES 1."San Francisco Bay Area Toll Bridge Revenue Bonds," Bay Area Toll Authority, Dec. 9, 2014, http://emma.msrb.org/ER818648-ER637347-ER1 038975.pdf. 2. Medtronic, "Medtronic Prices $17 Billion in Private Placement of Senior Notes," press release, Dec. 1, 2014, http://newsroom.medtronic.com/phoenix.zhtml?c=251324&p=irol- newsArticle&ID= 1993937. 3. World Bank Treasury, "World Bank Raises USD 4 Billion in a Landmark 10-Year Global Bond," press release, Nov. 18, 2014, http://treasury.worldbank.org/cmd/htm/ USD_4BillionLandmarkGlobalBond.html. 20 監 ......... ... .......... .. . .... .. .... ...... .. ........ ...... .... ..... . .. ... .... ......... . .... ................. ... ................. . ..... ... .. . ............. ..... .... .. . ...... ........ ......... .... .. . . ......... .............. ... . . ... . . . .................... .......................... ....... . . ............ .. ...... .. .......... .. ............ .... . .... ....... ......... ..... . .................. ........ ... ..... . . ........ .... .............. . .................. ..... ..... .. ..... .... .. ... ...... ... ........ .. .......... .. .... .... .. . ... .......... . . ..... . ...... .. .............. .... ....... . .. ...... ... . .................... . .... .. . . ........ . . ......... M m . . ........ K .. ..... ... .... .. ....... . ............ ...................... HýH:. .......... .. .. .. ... ... ... . .... .. ... . ........ ........ 2 1 1 H .... .... .. .. ... 2 ,2~ ...22.22 2:- .. ...... . .......... . ..... .... ........ . ......... .. ...... ......... .. .. . .... .... .... ...... . ..... ... ....... . ..... ................ .. .2 .... ..... .. .... . ......... ... 7mr AP, E ...yyv .................. 41ir 1,1 in VVHAT ARE GREM BONDS? WHAT IS A GREEN BOND AND HOW DOES IT DIFFER FROM A REGULAR BOND? A green bond is a debt security that is issued to raise capital specifically to support climate- related or environmental projects. This specific use of the financial characteristics (such funds raised -to support as maturity, coupon, price, the financing of specific and credit quality of the projects- distinguishes issuer), investors also assess green bonds from regular the specific environmental bonds. Thus, in addition to purpose of the projects that evaluating the standard the bonds intend to support. L UD'."' E23 WHY DID MULTILATERAL DEVELOPMENT BANKS ISSUE THE The World Bank (International Bank FIRST GREEN BONDS? for Reconstruction and Development or -IBRD-) launched the first labeled Several multilateral banks have issued green bond in 2008 in the amount bonds supporting the financing of of SKr 3.35 billion (approximately "green" projects, including the following: US$440 million).' The rationale for this first green bond was threefold: * First, it responded to specific demand from Scandinavian pension funds seeking Theto support climate-focused projects (AfDB) serves the development needs of through a simple fixed-income product. its membervesuthe d eed f It also fit well with IBRD's efforts to itS$ 0 meber iountres and isse actfirs cater to investors interested in sustainable US$500 million green bond in October anrepsilIvstg(S) 2013, building on previous experience with clean energy bonds for the - Second, it supported the World Japanese retail market.4 The proceeds Bank's strategy to introduce are allocated to support the financing innovation in climate finance. of climate change solutions as part of - Third, by focusing on climate change a broader strategy to support inclusive mitigation and adaptation projects, and sustainable growth in Africa. 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 The European Investment Bank be affected by it. (EIB) issued a f600 million Climate Awareness Bond in 2007 that focused on renewable energy and As of the end of June 2015, the World energy efficiency.5 Instead of a fixed Bank (IBRD) has issued US$8.5 billion coupon, the bond returns were linked in over 100 green bond transactions to an equity index (such a bond is in 18 currencies, supporting about commonly referred to in the bond 70 climate mitigation and adaptation market as "structured"). projects around the developing world. 24 has issued over 37 green bonds, raising US$3.8 billion outstanding in nine The International Finance Corporation currencies. Climate change is a major (IFC), also part of the World Bank strategic priority for IFC. Since 2005, Group, initially issued green bonds in IFC has committed more than US$13 2010 at the demand of investors seeking billion to climate-smart projects, some of climate-related investments with a fixed which have been funded by green bonds. 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 Other multilaterals and agencies that arena, IFC met the growing demand have also issued green bonds include with larger bond sizes, culminating in the Asian Development Bank (ADB),' two US$1 billion three-year green bonds the European Bank for Reconstruction issued in 2013, the largest green bonds in and Development (EBRD)," and the the market at the time. To date, sFC Nordic Investment Bank (NIB) 2 IL UND." )E ST 1. - 25 HOW DO GREEN BONDS FIT INTO AN member countries. As a multilateral ISSUER'S FUNDING STRATEGY? development cooperative, IBRD offers the same pricing in its lending to all its member countries in lending rates Green bonds allow issuers to reach that reflect its total average funding cost different investors and promote plus a percentage spread. Because IBRD green bonds are part of its general their environmental credentials. funding program, lending rates for projects included in IBRD's green bond For example, the World Bank (IBRD) program receive the same treatment as designed the green bond as part of all other IBRD loans. its overall bond program to cater to sustainable and responsible investors In the case of IFQ green bonds are aimed and promote its support of climate at its renewable energy investments and change projects in its borrowing 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 11 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. rBRD 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. 26BakAseARE nRodetiru nst 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. 27 WHAT IS THE GREEN BOND PROCESS? Using the World Bank (IBRD) process as an example, the steps followed by most green bond issuers generally fall into four categories: 0 Define project selection criteria. The Establish project selection process. issuer defines the kind of green projects All World Bank projects -including the it seeks to support with green bonds. For projects supported by its green bonds- the World Bank, such eligible projects undergo a rigorous review and approval must support the transition to low-carbon process, which includes early screening, development and climate-resilient growth. identifying and managing potential The selection criteria are often reviewed environmental and/or social impacts, and assessed by an external expert party and obtaining the approval of the to provide investors the assurance that Bank's Board of Executive Directors. they meet generally accepted technical Subsequently, environmental specialists definitions. The World Bank's green bond then screen the approved projects to criteria were defined in consultation with identify those that meet the World the initial investors and underwent an Bank's green bond eligibility criteria. independent review by the Center for International Climate and Environmental Research at the University of Oslo (CICERO). CICERO concurred that, combined with the governance structure of the World Bank, the World Bank eligibility criteria provided a sound basis for selecting climate-friendly projects. 28 T t Earmark and allocate proceeds. Monitor and report. The issuer monitors The issuer discloses how it will the implementation of the green projects separate green bond proceeds and and provides reports on the use of make periodic allocations to eligible proceeds and the expected environmental investments. The World Bank credits sustainability impacts. Summaries and key green bond proceeds to a special account impact indicators for green-bond-eligible and invests the funds in accordance with projects are provided on the World Banks its conservative liquidity policy until they Green Bond website with links to relevant are used to support eligible green bond documents and more detailed project projects. Funds are periodically allocated information." in an amount equal to the disbursements of eligible projects. IL UND7-29 IIR r WHAT ARE THE GREEN BOND PRINCIPLES? As the market grew rapidly, market players have sought to bring greater clarity to the definitions and processes associated with green bonds. Using the experiences of the multilateral development banks, in early 2014, -a group of banks initiated the development of the Green Bond Principles (GBP)-a set of voluntary guidelines framing the issuance of green bonds." In a second edition published in March The GBP recognize several broad categories 2015, the GBP encourage transparency, of potential eligible projects, which include disclosure, and integrity in the but are not limited to the following: development of the green bond market. - Renewable energy The GBP suggest a process for designating, disclosing, managing, and reporting on the proceeds of the bond. They are designed buildings) to provide issuers with guidance on the - Sustainable waste management key components involved in launching - Sustainable land use (including a green bond, including providing information to aid investors in evaluating the environmental impact of their green * Biodiversity conservation bond investments. The International - Clean transportation Capital Markets Association acts as the GBP's secretariat and facilitates the work (iSuinbleat anagement of its members, including issuers, investors, banks underwriting green bonds, and other - Climate change adaptation market participants. 30 T t HOW DO ISSUERS DEFINE WHAT IS'GREEN' WITH CREDIBILITY? Issuers define categories for environmental projects they plan to support with green bonds and report back to investors depending on their business model and context. Drawing from the practice of earlier issuers The market has been relying on and the GBP, green bond issuers have issuer disclosures, second opinions, developed their own green bond definition and commentary from academics; and process to suit their business profiles. investment advisers; auditors; technical experts; media; and Investors in green bonds expect information nongovernmental organizations from issuers in sufficient detail to allow (NGOs) such as CICERO, the them to assess green bond offers, such Climate Bonds Initiative, Det Norske as how issuers track and use green bond Veritas, (DNV), Norway, Oekom, proceeds and how they report the positive Sustainalytics, and Vigeo, among impacts expected from green projects. others. Also, several green bond The Investor Network on Climate Risk (a indices (for example, Barclays/Morgan North American nonprofit organization Stanley Capital International [MSCI], convened by Ceres that advocates for Standard & Poor's, and Solactive) are leadership in sustainability) has articulated useful benchmarks for green bond its "expectations" in a statement to guide portfolios and support transparency in issuers and other market participants.T14 definitions and processes. IL UNF" )E STADH 5EE E1O 31 WHAT ARE SOME EXAMPLES OF bonds with maturities ranging from 5 to GREEN BONDS BY TYPE OF ISSUER? 17 years in September, 2014-to finance environmentally beneficial projects in A variety of issuers have taken the early clean water, energy efficiency, and land examples of MDBs and the GBP and remediation, among other areas." developed processes that work for their business models and practices. Many have worked with investors to fine- BI-LATERAL TRADE AND DEVELOPMENT AGENCIES tune the categories of eligible projects and disclosure and reporting aspects. Export Development Canada issued Examples include the following: a three-year, US$300 million green bond in January 2014 to support direct loans in sectors that preserve, protect, CITIES, STATES, AND STATE-OWNED or remediate air, water, or soil or help ENTITIES (SUBNATIONALS) mitigate climate change.9 British Columbia supported energy KfW Development Bank has issued efficiency in new hospitals meeting green bonds since July 2014, including Leadership in Energy & Environmental a five-year, C1.5 billion bond to finance Design (LEED) gold certification KfW's environment investment program through a 32-year, Can$231 million including generation of renewable power, green bond issued in July 2014. especially from wind and photovoltaics.20 City of Gothenburg, together with Swedish bank Skandinaviska Enskilda UTILITIES Banken (SEB), developed a six-year, Skr 500 million green bond to finance The District of Columbia, Water and various environmental projects in public Sewer Authority (DC Water) issued transport, water management, energy, US$350 million in green bonds in July and waste management." 2014 with a 100-year final maturity to finance a portion of its Clean Rivers City ofJohannesburg issued a 10-year, Project. R 1.46 billion green bond in June 2014 to finance green initiatives such as the Biogas to GDF Suez, the French utility, issued the Energy Project, the Solar Geyser Initiative, largest-ever green bond-a £2.5 billion and other projects that will move the city (about US$3.4 billion) bond in May closer to a low-carbon infrastructure and 2014-to fund renewable energy projects. increase preservation of natural resources.1 CORPORATES State of Massachusetts issued two green bonds-a 20-year, US$100 million green Regency Centers Corporation, a real bond in June 2013 and a series of green estate investment trust, issued US$250 322he r to million in green bonds in May 2014 to 2013 and US$600 million in May finance the construction of shopping 2015-to finance renewable energy malls that meet the standards of the projects such as wind, solar, and U.S. Green Building Council.23 geothermal energy as well as energy efficiency projects.2 Toyota Financial Services issued a US$1.75 billion green bond in March ABN AMRO of the Netherlands issued 2014 to fund consumer loans and a five-year, £500 million green bond leases for its electric, hybrid, and low- in June 2015 to support mortgages emission vehicles. The bond returns in energy-efficient homes, loans for are linked to the performance of these home solar panels, and sustainable consumer loans and leases .24 commercial property.26 YES BANK, India's fourth-largest BANKS private sector bank, issued Rs 10 billion in 10-year green infrastructure Bank of America issued two green bonds in February 2015 to support its bonds-US$500 million in November renewable energy portfolio. e7 IUND['TN.7 GEN OD 33 WHAT HAS BEEN THE GROWTH AND COMPOSITION OF THE GREEN BOND MARKET? The market has grown from about US$4 billion in 2010 to over US$37 billion in 2014. As discussed earlier, the EIB issued tripled in 2013, as corporations, energy the first climate-focused bond in the utilities, and other agencies entered the form of a structured product in 2007. In market, and several issuers drastically 2008, the World Bank issued the first increased the issue size (figure 4). This bond labeled "green" for mainstream trend continued in 2014, when the investors with a fixed coupon. By green bond market volume rose to over 2010, they were joined for the first US$37 billion, over half of which was time by other MDBs such as the IFC issued by corporations such as Toyota and by public entities (governments, and public entities such as the State agencies, and municipalities) in issuing of Massachusetts. To date (mid-July a total of about US$4 billion worth of 2015), green bond issuances in 2015 climate-focused bonds. This total nearly have reached about US$23 billion. 34bah a T ta Figure 4 40 Green Bond Issuances, by Issuer Type, 2007-14 35 Source: World Bank Treasury analysis based on Bloomberg data and other public sources. - - .30 Energy and utility companies Corporations and banks C-D 2 Other government entities or agencies * KfW Bankengruppe . 20 Other multilateral development banks (MDBs) European Investment Bank (EIB) 15 International Finance Corporation (IFC) World Bank (IBRD) 10 2007 2008 2009 2010 2011 2012 2013 2014 Most investors have been investing announcements were made by in green bonds within their existing Zurich Insurance9 and Natixis Asset portfolios-responding to interest in Management's Responsible Investment supporting climate-focused activities. management company, Mirova,30 to set Asset managers have set up dedicated up portfolios dedicated to green bonds green bonds funds or have set targets in the magnitude of US$1 billion and for funds under management that Cl billion, respectively. In late 2014 and should include green bonds. For early 2015, the treasuries of Barclays example, Nikko Asset Management Bank3' and Deutsche Bank32 set up set up a World Bank Green Bond dedicated funds to invest fl billion and Fund in 20 10.28 A few years later, Cd billion in green bonds, respectively. IL UD'.735 WHO BUYS GREEN BONDS? HOW HAS THE PROFILE OF ISSUERS CHANGED? The main investors are located in Europe, followed As shown in figure 5, the green bond market from January 2014 to April 2015 by Japan and the Americas. has benefited from the participation of different kinds of issuers, which is also In Europe, institutional investors providing a broader spectrum of risk (such as pension funds and insurance (and return) in green bond offerings. companies) and, in the United States, investors with strong environmental From the total of about US$51 billion focus were the first green bond over the period, US$32.4 billion investors. Since then, green bond issuers represented offerings issued below a have tapped into a broader group of composite rating of AAA, of which investors including asset managers, US$15 billion were offerings rated below companies, foundations, and religious BBB, denoting bonds with higher yields organizations. As issuances have grown increasingly offered by corporatios, in size, the types of investors have subnationals, and utilities. grown increasingly diverse as well. For example, in 2014, Zurich Insurance Group announced that it would "double its commitment to green bonds," mandating the asset management firm Blackrock to invest US$1 billion in green bonds.33 Just like issuers, fixed-income investors are using green bonds to communicate to their stakeholders their commitment to supporting environmentally friendly investments. Many of them, for example, disclose their green bond purchases through press releases and other communication. 36 T t Investment Sub-Investment Grade Grade or Unrated Rating* AAA AA A BBB