IFAD's Euro Bond for Rural Poverty Relief

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by KnowESG
KnowESG_Sustainability
Image courtesy of https://www.ifad.org/

The International Fund for Agricultural Development (IFAD) has issued its inaugural euro private placement of €65 million to four German pension funds, with Hamburger Pensionskasse (HPK) as the primary investor.

As one of Germany's largest company pension funds, HPK collaborates with the German food and beverage and retail industries.

With this investment, IFAD will aid thousands of small-scale farmers and their families in rural areas of developing countries to adapt to climate change, boost production, and gain better access to value chains and markets.

The investment comes at a crucial time when rural populations are struggling with rising food, fertiliser, and energy prices, as well as extreme weather events.

Natalia Toschi, Head of Funding at IFAD, expressed her pride in partnering with these pension funds that share IFAD's long-term sustainable goals. The investment will aid small-scale farmers in developing countries, who produce one-third of the world's food, to improve their standard of living. Despite the continued market volatility, the shared goals between IFAD and the Hamburg team were a crucial factor in achieving this milestone investment.

Stefan Klein, Head of Fixed Income in portfolio management at HAPEV, the mandated administration company, stated that after years of low and even negative interest rates, they are now using the current interest rate environment to reinforce their direct fixed-income investments. If these investments can have a significant impact and bring about positive change, they would be delighted. The objectives of IFAD are in alignment with the interests of their nearly one million members, who seek safe, sustainable, and valuable retirement provisions.

In 2022, IFAD issued its initial two sustainable bonds worth a combined US$150 million. Since then, the organisation has expanded its investment offerings to include Eurobonds with varying tenors. The private placement with the pension funds has a 12-year maturity period.

Toschi emphasised that IFAD's 12-year bond adds another point to its issuer curve and aims to expand it further in the future. The primary objective is to boost financing for at-risk rural communities that are facing economic and climate-related difficulties. IFAD's investment in rural development is crucial, especially in the current scenario.

IFAD's strategy to explore innovative funding models to direct more resources towards those in need in low- and middle-income nations included issuing its inaugural sustainable bond in June 2022. As a result, it became the first United Nations Fund and the only specialised UN agency, other than the World Bank Group, to operate in capital markets. IFAD issued a total of US$150 million in two bonds in 2022, and it holds AA+ ratings from both Standard & Poor's and Fitch.

Approximately 3 billion individuals reside in rural regions of developing nations and depend primarily on small-scale farming for their sustenance and livelihoods. Small-scale farmers account for one-third of the world's food output and up to 70% in low- and middle-income nations. Despite their role in global food security, they are frequently impoverished and undernourished. Rural areas are home to roughly 80% of the world's population, which lives in extreme poverty.

The number of individuals experiencing hunger has risen in recent years and reached approximately 828 million in 2022. According to the 2022 Global Report on Food Crises, the number of individuals facing acute food insecurity also increased, reaching 205 million in mid-2022 due to conflicts, extreme weather events, the acceleration of climate change, and successive economic shocks.

IFAD's funding programme provides investors with additional information.

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Source: IFAD

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