World Bank’s Record $225M Carbon Reduction Bond Is First to Link Financial Returns to Success – ‘First bond linking investors’ financial return to removal of carbon from atmosphere’
https://www.mrctv.org/blog/craig-bannister/world-banks-record-225m-carbon-reduction-bond-first-link-financial-returns
By Craig Bannister
On Tuesday, the World Bank announced a first-of-its-kind bond where financial returns are tied to a reforestation project’s success in removing carbon from the atmosphere.
The nine-year $225 million principal-protected Amazon Reforestation-Linked Bond is also the largest “outcome” bond ever issued by the World Bank. The bond provides investors both a minimum guaranteed fixed financial return and a carbon reduction success-based return, the organization announced in a press release:
“The largest World Bank outcome bond ever priced provides investors with a coupon that includes a fixed guaranteed component and a variable component linked to the generation of Carbon Removal Units (CRUs) from reforestation projects in the Amazon rainforest regions of Brazil.
“It is the first bond linking investors’ financial return to the removal of carbon from the atmosphere, differing from past transactions linked to the sale of carbon credits from avoided emissions.”
However, only $36 million of the $225 million actually supports the reforestation efforts the variable return will be based on – the rest of the money will be “used to support the World Bank’s sustainable development activities globally.”
Additionally, investors’ financial returns are not expected to exceed the returns offered by other World Bank bonds – and they won’t even match other bonds unless the carbon reduction goal is met:
“The bond offers investors a potential financial benefit compared to regular World Bank bonds of similar maturity if the projects and monetization of high-quality CRUs are generated as expected.”
The $36 million of capital to support Amazon reforestation will be provided to a Brazilian based company named Mombak, World Bank explains:
“The company uses these funds to acquire or enter into partnerships with landowners in the Amazon rainforest to reforest the land with native tree species.
“In addition to removing carbon, the reforestation enhances biodiversity and fosters socioeconomic development in local communities.”