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  • ESG
  • Impact investing
  • World Bank

Aligning financial innovation with impact: Insights from World Bank’s approach to capital markets

Feature-image

Treasurers can now support the World Bank’s mission of alleviating poverty and promoting shared prosperity and also earn a financial and social return on their investment portfolio.

by Anmol Karwal

Published: June 6th 2023

The evolving landscape of sustainable and impact investing is causing a paradigm shift in the world of finance. Traditional investment models are being challenged by innovative approaches that value not just financial returns, but social and environmental impacts as well. Key players such as the World Bank are at the forefront of this transformation, and their strategies hold profound implications for corporate treasuries, especially those with an active interest in aligning their investment practices with corporate social responsibility (CSR) objectives.

At EuroFinance’s 9th annual Global Treasury Americas West Coast, Akinchan Jain, head of asset and liability operations at the World Bank Treasury offered valuable insights for corporate treasuries navigating the new investment landscape.

Leveraging capital markets for a greater impact

The World Bank provides loans and technical assistance to developing countries for development projects, such as infrastructure, climate, health, and education, that are expected to improve the economic prospects and quality of life for people in those countries.

In the quest to fund these projects, the World Bank has become one of the most prominent borrowers in the capital markets, regularly raising tens of billion dollars every year. Explaining the World Bank’s approach, Jain noted, “We raise $40-50 billion every year from investors around the world that are lent  to low- and middle-income member countries to finance policies and projects that promote sustainable development. 

The World Bank is considered a safe investment, and has been issuing bonds since 1947. “We have always been rated triple-A  for over 60 years. That’s a testament to the prudence with which we manage our balance sheet,” Jain affirmed.

Over the last decade, there has been a surge of interest in socially responsible investments. Investors are not just concerned about financial returns but also care about the social impact of their investments. This ethos aligns perfectly with the World Bank’s mission.

Jain explained how World Bank’s conventional bond issuances (known as Sustainable Development Bonds) enable investors to earn attractive risk-adjusted financial returns while at the same time contributing to projects that support the 17 Sustainable Development Goals (SDGs) without taking any project risk. In recent years, World Bank has also developed and issued customised, innovative outcome bonds that enable investors to take project risk. Both types of bonds offer an attractive proposition for corporate treasurers, one that aligns with the growing demand from stakeholders for businesses to demonstrate their commitment to sustainability and social responsibility.

Yet, Jain pointed out, “One of the challenges with impact investing is being able to measure that impact.” This issue is a critical one for corporate treasuries, who are accountable not only for the financial performance of their investments, but increasingly for their social and environmental impact as well.

Jain outlined the World Bank’s rigorous approach to ensuring transparency and measurability in their projects. “Each of the projects that the World Bank finances has clear indicators that are measured and monitored,” he said. This systematic approach to impact measurement can serve as a useful model for corporate treasuries embarking on their own impact investment journeys.

Viewed from a corporate treasury lens, the World Bank’s innovative approach to capital markets offers valuable insights. It presents an opportunity to broaden the scope of treasury operations from traditional financial management to playing a pivotal role in advancing a company’s CSR objectives.

Moreover, it highlights the role of financial innovation in driving sustainable and impactful change. The World Bank’s pioneering work in developing new financial instruments, like green bonds, sustainability bonds, pandemic bonds, and outcome bonds, is a testament to the potential of the capital markets to contribute to a better world.

In essence, the World Bank’s approach offers a compelling model for corporate treasuries seeking to align their investment strategies with sustainability and impact. The systematic measurement and monitoring of project impact, coupled with financial innovation, can help treasuries contribute meaningfully to their company’s broader social and environmental objectives, while still achieving sound financial returns.

As Jain succinctly put it, “By investing in World Bank bonds, corporate treasuries have the option to promote sustainable development without sacrificing their risk-return profile.” For treasurers, this sentiment could serve as a guiding principle for their journey into the future of impact investing.

 

EuroFinance International Treasury Management 2023

The world’s largest and most influential treasury event will return this September in Barcelona. Join more than 2000 senior-level professionals representing over 800 companies from more than 50 countries to exchange experiences, learn best practices and meet best-in-class financial and technological partners. On the theme of “Navigating the new world,” this year’s agenda will empower treasurers to tackle today’s new and complex challenges and optimise treasury for the new economic cycle.