UBS has launched financial benchmark indices for debt issued by the World Bank and other development banks.
Solactive, a German financial indices provider, is helping facilitate the Solactive UBS Development Bank Bond, which comprises 36 total return indices that match the performance of US dollar-denominated bonds issued by development banks.
The new indices will cover World Bank bonds, multilateral development lender bonds, and development bank bonds. Their aim is to give investors the ability to allocate more private capital to sustainable fixed-income instruments and depend less on traditional indices which typically offer only 2 percent exposure to development lenders. According to UBS, the indices will cover a range of instruments that actively finance development banks’ balance sheets.
Jim Yong Kim, president of the World Bank Group, made the announcement with UBS’s chairman of the board of directors Axel Weber at the bank’s 2018 Spring Meetings in Washington DC. UBS and The World Bank have recently partnered with the aim of making sustainable investment opportunities more available to clients.
“Investors have historically struggled to find high-grade debt instruments with a sustainability focus, especially within traditional financial benchmarks,” said Mark Haefele, chief investment officer at UBS Global Wealth Management. “These new indices open up new avenues for sustainable investors and fruitful partnerships with development banks seeking fresh funds.”
Institutional investors and corporate treasuries are expected to benefit as they often look at indices according to strict fiduciary rules, which together with low exposure to impact investment often minimise sustainable investments overall. The indices could also deepen the volume of capital with which the World Bank and other development banks fund and invest in projects around the world.
UBS has invested in about two billion Swiss Franc of World Bank debt, which forms a portion of a fully sustainable cross-asset set of portfolios for private clients. The company’s CEO, Steffen Scheuble said indices give investors “standardised access to relevant instruments that can help deepen liquidity and issuance”.
Jim Yong Kim, speaking at the meetings in DC, said greater access to quality information on investments with impact would empower investors to “move investment dollars off the sidelines and put that capital to work to address the immense environmental and social challenges in developing countries”.
UBS were contacted to name other development lenders the indices would include, but said it was unable to comment on other specific issuers apart from the World Bank.
My impression is that the World Bank has an overhead rate of 20-40% with most of their projects underperforming or failing while they provide a vital service to prop up weak governments. At best, most of their sustainable development projects are not cost effective based on my 30 years interacting with World Bank projects across Latin America.
Notwithstanding, private sector engagement with the World Bank like this UBS initiative could move the needle toward sustainbility albert at slow and inefficient, it can help mainstream sustainbility investing.
While I commend UBS for partnering with the World Bank with a prudent risk management strategy at scale that will likely offer its clients low risk investments. However, this seems to point to moving money feom Wall Street to Washington DC and other World Bank offices aron sn the world. The risk is simply pursuing feel good transactions or possibly green washing. The solution could be choosing the right impact metrics to authentically assess sustainabilty impact. At Ejido Verde, we”re using a proprietary Regenerative Performace Dashboard to guide and monitor the impact of our investments in Mexico. More important that delivering quality data, the key is to make sure we’re answering the right question. Assets Undet Management in ‘Sustainalble Investmet Funds’ is definitely not a metric to the right question.