Q&A: Stephanie von Friedeburg, IFC

Channels: Green Bonds

The IFC's Interim Managing Director and Executive Vice President talks to Environmental Finance on the 10th anniversary of its green bond programme

Stephanie von Friedeburg

It has been 10 years since you first issued green bonds. What are the main achievements of the programme?

We have come a long way in ten years, broken lots of new ground and are continuing to learn.

IFC issued the market's first global US dollar-denominated benchmark-sized green bonds in 2013, which set a precedent as the largest green bonds in the market at the time of issuance and helped solidify the market.

As of 30 June 2020, IFC had issued $10.4 billion green bonds in 20 currencies.  The proceeds of those bonds have gone to 221 projects and are expected to reduce greenhouse gas emissions by 21.8 million metric tonnes of carbon dioxide (CO₂)-equivalent per year: That is about the CO₂ emissions from 2.5 billion gallons of consumed gasoline.

We have also invested over $12 billion in climate finance investments through financial institutions to support climate-related credit lines. Last year, for instance, IFC subscribed a $50 million bond issued by Banco Pichincha Ecuador, the country's first green bond issuer. In doing so, IFC joined forces with Proparco and IDB Invest for a total of $150 million. With the proceeds from the bond, the Ecuadorian private lender will be able to finance projects in renewable energy, sustainable buildings and green mortgages, clean mobility and energy efficiency.

Another area where we have broken ground in is mobilizing private capital. We achieved this through two green bond funds which have raised over $2.5 billion for investments in financial institutions and the real sector - the Amundi Planet EGO Fund, the world's largest targeted green bond fund focused on emerging markets, and the Real Economy Green Investment Opportunity Fund, launched in May 2020 with HSBC Global Asset Management.

How has IFC's strategy changed in light of the 2030 Goals?

Four years ago, we celebrated our 60th anniversary and our CEO asked us to do a retrospective of IFC and, from this, set a new strategy to grow the business, addressing the world's most difficult development challenges and helping meet the 2030 goals.

This was the process that generated our IFC 3.0 strategy, or our Creating Markets strategy, which consists of two pillars:

The first pillar is designed to create policy and regulatory environments conducive to private investment and to produce more bankable projects as we know there are just not enough sustainable projects, especially in the poorest countries. We call this working "Upstream". It includes a wide toolkit of approaches, from policy reform and implementation to project development, which seeks to generate investable opportunities. It dovetails naturally with our collaboration across the World Bank Group to prioritise private sector solutions and reserve public financing for projects that are not commercial in nature. And it demands that we work together to create the greatest impact.

The second pillar is designed to crowd in much-needed private capital. We all know from Addis Ababa and beyond that there is patient capital sitting on the sidelines, with limited or negative yields, and we need to find ways to bring these funds into our projects. Here we can leverage our asset management company and our syndication platforms where we have been able to bring sovereign wealth funds, pension funds and insurance companies to the table.

What role do bonds play in this mission?

The funding gap that we must bridge if the world is to meet the Sustainable Development Goals by 2030 is estimated to be at least $2.5 trillion annually. That means that we must dramatically scale up investments in sustainable finance within the next decade.

We cannot consider large scale financing without leveraging in the bond market. Bonds are an attractive option to raise capital for sovereigns and corporates. They are a stable and reliable source of term finance and provide access to larger volumes than other credit products. Sustainable investing has been gaining a foothold in mainstream financial markets but traditionally, the focus had been in equity markets. The green and social bond product has changed this, and investors now specifically welcome the inclusion of green or social bonds into their portfolios as they look to increase investments that have positive social and environmental impact. A decade ago, green bonds were virtually non-existent. Last year, they brought in nearly $170 billion to fund climate investments. This year alone we have already seen around $100 billion in global social bond issuances, a substantial increase from the $17.4 billion issued in 2019.

We're proud to have played a role in the wave that brought sustainable bonds to the menu of investors worldwide.

And the Covid-19 pandemic has proven that sustainable bonds should be a main staple of capital markets if we are to mitigate the global challenges we face.

How is the IFC responding to the Covid-19 pandemic?

Today, when I look at our strategy, complemented by our historic $5.5 billion capital increase, I believe IFC could not be better placed to address the financial and development challenges the world is facing as a result of Covid.

We have lost as much as a decade of development gains. Our estimates are that as many as 150 million people will end up in extreme poverty in 2021. We see that governments have used their limited fiscal space they had to help citizens as part of the Covid crisis and in the poorest countries, there is simply no fiscal space left. Together with this, we also know that domestic and foreign direct investment has fallen by at least $950 billion over the course of the pandemic.

So, IFC must leverage its strategy and its experience to bring the private sector back to emerging markets to create the economic growth and the jobs that we need to bring recovery. Thus, for Covid-19, we created what I call our "3R" frame, namely relief, restructuring and resilient recovery, to help us define interventions that leverage our 3.0 strategy and capital increase to truly make a difference.

On relief: In March, we worked with our Board to create a $8 billion fast track Covid facility that we made available to our existing clients, both to financial institutions, to on lend to SMEs and women, and our real sector clients. We have committed 50% of this facility in just six months.

Together with this, in July, we launched a $4 billion global health platform, which will allow us to invest in companies located in both developing and developed economies, to help private companies provide the PPE, medical equipment, and ultimately vaccines in our countries of operation.

On restructuring: We know that there is a wave insolvencies and bankruptcies coming our way. We need to work very closely with our World Bank colleagues to ensure that the policies and regulation are in place in as many countries as possible to expedite work outs and bankruptcies, keeping as many viable companies afloat as possible and reallocating assets where necessary.

IFC is also preparing to launch a restructuring fund through its Asset Management Company, knowing that equity will be critical. And a global debt fund to support larger corporates.

On rebuilding resiliently: Today, our "Creating Markets" strategy is more relevant than ever in relation to creating bankable projects by working upstream and attracting private capital to the most difficult markets. We know that after the 2008 crisis, it took over three years for FDI and private sector investment to return to pre-crisis levels in emerging markets. The 2008 crisis pales in comparison, and without some means to accelerate the return of capital, it could take us a decade to bring private sector investment back to its pre-Covid levels in emerging markets. Given the overall indebtedness of the world's poorest countries, the private sector will be all the more important.

Our 3.0 Creating Markets strategy exemplifies a new financing approach focused on the mobilisation of the private sector. We are working to: (i) create policy and regulatory reforms that promote private investment, (ii) develop projects upstream, and (iii) introduce blended finance to de-risk projects.

What is your strategy to crowd-in private finance?

This involves a myriad of different tools and approaches.

First, we have created innovative platforms to mobilise private capital into difficult markets. We are bringing asset managers and development finance institutions into the market to manage funds for impact at scale in a disciplined way. IFC created the AMC equity funds and MCPP debt mobilisation platform, which have enabled institutional investors to invest at scale.

We are also establishing the tools to de-risk projects. We established the IDA Private Sector Window (PSW) to catalyse private investment in countries eligible for assistance from the International Development Association (IDA), the Bank Group's fund for the poorest countries. With the four facilities under the PSW — Risk Mitigation, Blended Finance, Local Currency, and MIGA Guarantee — we now have tools to de-risk projects and overcome the lack of local currency financing.

Stephanie von Friedeburg is Interim Managing Director and Executive Vice President, Chief Operating Officer, at the IFC.