Is ESG a luxury or a necessity?
October 16, 2020Is ESG a luxury or a necessity?
As appetite rises for sustainable investments, Scotiabank is becoming known as a top provider of sustainable development bonds in Canadian dollars.
That’s particularly true considering our track-record earning leading roles for several transactions, including a C$750 million, seven-year benchmark sustainable development bond for the World Bank (International Bank for Reconstruction and Development, IBRD). With the September 17th issuance achieving strong and diversified investor demand, it represented Scotiabank’s seventh Canadian Dollar transaction for a multilateral borrower in 2020.
Supporting global health and social development
As the world’s largest development bank, the World Bank (IBRD) provides loans, guarantees and advice to middle-income countries and support for regional and global challenges to help achieve its twin goals of eradicating extreme poverty and boosting shared prosperity. With the World Bank’s Sustainable Development Bonds, investors can “do well by doing good,” while supporting the Sustainable Development Goals, including poverty reduction, health and well-being, gender equality and reduction of inequality.
Specifically relating to the current pandemic, proceeds from the World Bank’s funding program will support financing more than 150 projects in about 100 countries. They range from funding healthcare, nutrition and income support efforts in Colombia, to the purchase of lifesaving ventilators and PPE in India, to the creation of integrated health networks in Peru to aid uninsured citizens.
Such a portfolio of programs, well-structured, packaged and timed, has strong appeal among Canadian institutional investors, according to Cesare Roselli, the UK-based Global Head of Sovereign, Supranational and Agency Origination with Scotiabank Global Banking and Markets. “The domestic investor base is especially supportive of responsible investing. Global issuers are recognizing the importance of the Canadian currency and investor base since the local market really attributes value to these issuances,” observes Roselli.
The World Bank can be credited for playing a catalytic role in the development of the C$ sustainable finance market by taking a long-term approach to their funding activities and establishing a permanent presence, rewarded with a growing investor base and contributing to the broader sector’s growth. In fact, the World Bank was the first sustainable development bond-labeled issuer – also in Canada – and is the largest Canadian dollar sustainable finance issuer, reaching C$9.3 billion outstanding to date.
Joining World Bank’s sustainability legacy
Scotiabank has become a partner of the World Bank’s CAD funding strategy in recent years, having supported all three IBRD Canadian dollar issuances in 2020, culminating in the seven-year benchmark bond in September.
“To earn roles on transactions like these, as a bank you must demonstrate your conviction and insights on the market, in addition to having strong executional capabilities and structuring a competitive package,” explains Roselli. “Our sales forces in the Americas, Asia and Europe are very plugged into local investor sentiment, so we could give the World Bank a clear sense of market demand and how the transaction would go. That was critical for a seven-year maturity, which is less common in the Canadian currency, so success can hinge on precise timing and issuance format.”
“The Canadian investor base has been increasingly focused on using the power of their investments to not only achieve an attractive financial return, but also to contribute towards making a positive difference to society and the environment – essentially earning a social return as well. We’ve been very grateful to have the opportunity to engage with investors as they incorporate environmental, social and governance (ESG) criteria in their investment process and commit to channeling more investments towards sustainable activities,” said Heike Reichelt, Head of Investor Relations and Sustainable Finance at the World Bank.
While Scotiabank has had a long-standing relationship with the World Bank, the multilateral development bank has increasingly involved the Canadian-based institution in its financing activities as Scotiabank bolstered its own sustainable finance capabilities.
Of note, in 2019 Scotiabank committed to mobilize $100 billion by 2025 to reduce the impacts of climate change, support clients in the transition to a low-carbon economy and decarbonize its own operations. And, in June 2020, Scotiabank launched a new Sustainable Finance Group in the Global Banking and Markets division to strengthen its support to clients who pursue a variety of sustainability ambitions, from COVID-19 pandemic relief to GHG reduction, and other social objectives.
Roselli says that the creation of Scotiabank’s dedicated Sustainable Finance Group has been very beneficial in supporting deals and bringing clients distinct market intelligence and investor introductions. For example, they helped one multilateral issuer organize an extensive Canadian roadshow to help the client launch their new sustainable development program and gain unique access to receptive institutional investors.
A high-quality issuer profile meets market-timed execution
Months of conversations between a dealer and issuer are ultimately measured on the end results, and for the World Bank’s 7-year outing, strong investor reception to the issuance in the Americas time zone pushed IOIs over C$575 million by the time books opened the next morning in Europe. The books steadily grew to orders exceeding C$750 million, with a spread set to MS+3 bps before books closed. The transaction also garnered well-diversified demand by geography, with very warm interest in Canada and Japan, and balanced distribution among banks, corporates, asset managers and central banks.
“The transaction impressed the market by breaking the ceiling on a large, seven-year benchmark bond,” says Roselli. “We’re proud that we are developing market leadership in sustainable investments, both in terms of volumes and number of transactions that Scotiabank participated in, and also the expertise we’ve applied to make challenging and innovative ideas a success.”
For more information, please contact:
Global Head of SSA Origination