Gennadiy Goldberg: Hello, welcome and thanks for joining us today. My name’s Gennadiy Goldberg and I’m the Senior U.S. Rates Strategist at TD Securities. I’m very pleased to be joined by John Gandolfo, Treasurer at the IFC.
Over a year has passed since the start of COVID and parts of the world are certainly busy reopening while others have not been quite so lucky so our conversation today is meant to gain a little bit of perspective on how COVID may have changed things in both the short term and the long run. I'm also very pleased to welcome my co-interviewer Laura O’Connor from our Debt Capital Markets team whom I’ll ask to introduce our guest today.
Laura O'Connor: Thanks Gennadiy and welcome to John. In your role as Treasurer of IFC, which is the private sector arm of the World Bank Group, your balance sheet registers the devastating but also non-uniform impact of COVID-19 on economies in the developing world. How do you view your role in the world's recovery from COVID-19 and has it changed compared with the 2008 downturn?
John Gandolfo: Thank you very much Laura and Gennadiy and thank you for inviting me to be a part of this. As you said IFC is a member of the World Bank group and it's the largest global development institution that's focused on the private sector in emerging markets. Prior to the COVID-19 pandemic IFC shareholders gave their very strong support to IFC’s strategic directions and that's what we call IFC 3.0. This was demonstrated by their approval of the largest ever capital increase for the corporation – it was a $5.5 billion capital increase. The IFC strategy will very much guide our efforts to help the private sector and emerging markets recover from the pandemic. The first pillar of the strategy is creating markets and that's because one of the biggest obstacles to nurturing the private sector in developing countries has been really the lack of bankable projects and to address that we have been increasingly working upstream to get earlier involved in the project development cycle. The second pillar of IFC 3.0 is about mobilizing more private capital for development purposes. Now IFC’s response to COVID-19 has been focused on Relief, Restructuring, and what we call Resilient Recovery.
In the Relief phase in March 2020 we launched an $8 billion fast track COVID-19 facility to provide liquidity to existing clients and helping companies and businesses preserve jobs. Much of the funding is going to micro, small, and medium-sized enterprises because they’re a major source of employment in developing countries as well as women entrepreneurs and who have suffered disproportionately during the pandemic. And much of that relief also is expected to benefit the poorest countries and fragile and conflict-affected states. In July 2020, we launched a $4 billion global health platform to invest in companies to increase the supply of critical medical equipment and services in developing countries – including face masks, ventilators, testing kits, and vaccines. In the second phase of Restructuring, and this has started, we have been working towards restructuring companies whose underlying operations are viable and necessary to support economic growth and sustain employment. And then in the Recovery phase we're working towards IFC's upstream pipeline which now stands at greater than $15 billion of pipeline for IFC's own account and a similar amount for mobilization. So, really in contrast to 2008 I think IFC has been actively trying to play a strong counter-cyclical role similar to the rest of the World Bank group.
Gennadiy Goldberg: Thanks for that, John. And following up on that, something our viewers would be interested in knowing is how your issuance needs have changed perhaps over the past year and really where you see them heading in the future as you kind of shepherd the world out of this global recovery from COVID-19.
John Gandolfo: Thanks, Gennadiy. IFC’s funding program is really integrally linked to and aligned with IFC's investment operations and as a result, sustainability, responsible investing, ESG and impact are core to who we are and how we fund and also how we lend. And IFC borrows around $17 billion in capital markets every year now: long-term and short-term funding. We have two established thematic bond programs: green and social. And around 20% of our funding program is issued in those, in the green and social thematic bond categories and the proceeds of which fund eligible projects from IFC's loan portfolio with clear environmental or social benefits. Now, IFC was one of the earliest issuers of green bonds, launching a program back in 2010 and was really instrumental in mainstreaming the green bond market through landmark bond issuances in 2013 and now has issued over $10 billion in green bonds. IFC’s also been a pioneer in the social bond market and one of the largest issuers of social bonds in public and private markets in various currencies and tenors. IFC’s social bond program was launched in 2017 and now cumulatively we’ve issued over $3 billion in social bonds.
In addition, IFC plays a leadership role in developing guidelines to grow the sustainable bond market and has been actively involved in various initiatives to promote ESG integration. In the coming decade we expect our annual funding program to more than double. You also may have seen that IFC is committed to be 85% Paris-aligned by 2023 and 100% by 2025. We've also committed to our investments having 35% climate code benefits on average over the next five years. So given this, it's been great to see the growth of sustainable green and social bond markets and we expect to continue to be active issuers in those spaces in the years to come.
Laura O'Connor: John you mentioned your social bond program and last year you issued your largest ever bond – a $1 billion three-year that won awards. Congratulations to you and your team. IFC has been at the forefront of ESG, and in particular, social bond developments. There is a lot of focus on this asset class in the wake of COVID-19. What developments would you like to see by the time that three-year bond matures?
John Gandolfo: Thank you very much Laura for the congratulations. As you know, as the global pandemic spread in 2020, endangering lives, livelihoods, and the social and economic core of countries across the world, social bonds did become very much in demand. As you said in March 2020 IFC did issue a $1 billion social bond that helped to fund IFC’s $8 billion COVID-19 response package. With a final order book of over $3.4 billion the deal was very well-received in the market and is a testament to investors being strongly interested in supporting the alleviation of social issues. IFC has now more than doubled its cumulative social bond issuance and 2020 also saw $142 billion in global social bond issuances, which was a substantial increase over the number seen in 2019. And we think that social bond issuance could reach close to $200 billion this year. We envision surpassing $15 billion in cumulative social bond issuance also by the end of this year. I hope very much that the sustainable bond universe will continue to grow and hopefully at a faster pace. We have already seen issuance this year surpass the same period in 2020 and as the world focuses increasingly on issues related to climate change, resilience, and inequality, I believe that sustainable bonds will also increasingly be in demand by institutional investors.
Gennadiy Goldberg: Now John, a bit more of a technical question that I think may interest viewers as well –the LIBOR transition has certainly been getting a lot of headlines in recent years. Has it changed your approach to funding, since certainly you fund across the world? And really has the varied pace of pace of the transition across multiple currencies complicated matters for you?
John Gandolfo: So, like most others that are issuing in the markets and operating in the derivatives markets as well, the LIBOR transition has impacted pretty much all our operations and we've done a comprehensive analysis of the impact of the LIBOR transition across the entire corporation from lending, funding, liquidity investments, accounting, information technology, also on our on our existing portfolios and our mobilization programs. IFC has been monitoring market developments and working towards a smooth transition. We've been collaborating with partners in the financial industry and in particular with the other multilateral development banks and other development finance institutions.
The transition process from LIBOR to SOFR is continuously evolving and represents a significant change that will impact all participants in the capital markets globally and we've been taking significant steps now. We issued a debut swap to SOFR and that was a milestone for IFC's transition away from LIBOR. And as of today we issued and swapped almost $1 billion of our funding program to SOFR and going forward by swapping back all our new plain vanilla bond issuance in multiple currencies to SOFR, we hope to contribute to the acceleration of the SOFR market development and an easier transition for our clients.
Laura O’Connor: Thank you, John. What do you think will be the lasting impact of this experience?
John Gandolfo: Laura, in the World Bank Group we talk a lot about what we call Green, Resilient and Inclusive Development and as the World Bank Group continues its COVID-19 crisis response, we're looking to the future as poverty, climate change, and inequality become defining issues of our time. It's essential for countries to achieve lasting economic growth without degrading the environment or aggravating inequality. The World Bank Group is linking short- and long-term solutions to help developing countries prepare for the post-COVID world with the opportunity to build a Green, Resilient, and Inclusive recovery.
We're working to help countries achieve growth that is on the green side as the largest provider of climate finance to developing world. We’re integrating climate into all of our country diagnostics and country strategies. In addition, we have a major effort to support countries’ nationally-determined contributions to meet the principles and goals of the Paris commitments. We're stepping up our efforts to help countries strengthen resilience across the board, including building resilient infrastructure, putting in place emergency response protocols, disaster risk financing, safety nets and risk transfer solutions. And in the past year, the World Bank Group has mobilized an unprecedented increase in our social protection activities, helping countries plan and implement urgent social protection measures. So I hope very much things going forward and coming out of this COVID-19 experience that the world transitions to thinking more about bringing Green, Resilient and Inclusive Development. Thank you.
Gennadiy Goldberg: Thanks for that John and thanks for joining our conversation today. And thanks for everyone for tuning in.