LONDON, March 9 (IFR) - The World Bank has raised its first bond linked to the United Nations’ Sustainable Development Goals as it looks to help a global effort to end poverty, tackle climate change and promote equality.
The returns on the €163m two-tranche issue led by BNP Paribas are linked to an index of 50 companies that have been identified as making a significant contribution to the advancement of the UN’s sustainable development agenda.
The agenda was adopted by UN member states in late 2015 and includes 17 separate Sustainable Development Goals (SDGs), ranging from an end to poverty, access to clean water, gender equality and climate action.
A €106.8m 15-year tranche sees all returns delivered at maturity to reflect index performance from the initial level to an average over years 10 and 15. The €56.8m 20-year part pays a fixed 1.2% coupon for the first 10 years, with the remaining 10 years paid out via a coupon reflecting the best performance of the index between years five and 10 over an average of the preceding five years.
The deal represents the first issue from the World Bank's "SDGs Everyone" initiative announced in January. Unlike a typical Green bond, where proceeds are earmarked for specific environmental projects, proceeds from SDG issues will be used for general development projects.
"We are confident that we can replicate the success of the World Bank’s Green Growth Bonds with this new programme,” said Olivier Osty, executive head of global markets at BNP Paribas.
The deal was placed with French and Italian institutional investors, including Fideuram Asset Management, Generali France, Sella Gestioni and Suravenir.
"We see this as an opportunity to promote innovative investment products that combine performance with sustainable investments, together with the great satisfaction that comes with contributing to the development of these new solutions," said Bernard Le Bras, CEO of Suravenir.
Growing interest in equity-linked participation for fixed income assets in the socially responsible investment space reflects the scramble for yield in a sector dominated by Triple A rated supranational issuers that offer razor-thin returns.
For the World Bank, which has issued US$9.7bn-equivalent in Green bonds, including around US$500m with equity-linked participation, the latest transaction is the first to offer returns linked to Solactive's Sustainable Development Goals World Index.
Created by Solactive, the index combines environmental, social and governance thematic with smart beta filters to remove the most volatile stocks and promote stability, bringing together two major global investment trends.
Constituents are rated according to their business practices and social and environmental impact using methodology developed by independent provider Vigeo Eiris Equitics.
Companies included in the index are equally weighted. Under methodology that limits each sector to 12 stocks and 25% of index capitalisation, healthcare and industrial sectors currently account for a quarter of the benchmark each.
The index provides exposure to technology firm SAP, which has committed to 100% renewable energy for powering its data centres, Nestle, which is targeting zero waste across all sites by 2020, and Danone, which aims for 60% reduction of water consumption in its factories by 2020.
BNP Paribas struck an exclusive licensing agreement with Solactive last year to offer swaps, certificates and structured products linked to the new benchmark.
"This bond is an innovation that demonstrates the powerful role of capital markets in connecting savings with development priorities, while offering investors an attractive risk-reward profile," said Arunma Oteh, World Bank vice president and treasurer. "We anticipate coming to market with similar issuances that would attract a range of investors across the globe.” (Reporting by Helen Bartholomew; Editing by Philip Wright)