The World Bank, through the International Bank for Reconstruction and Development (IBRD), has issued a $225 million Amazon Reforestation-Linked Bond, the largest outcome bond in its history, to support reforestation efforts in Brazil’s Amazon rainforest.
This 9-year bond links investor returns to the generation of Carbon Removal Units (CRUs) derived from reforestation projects, marking the first bond to tie financial returns directly to carbon removal rather than the sale of carbon credits from avoided emissions.
The bond aims to mobilize around $36 million to fund Mombak, a Brazilian company dedicated to reforesting the Amazon with native tree species, the World Bank said in a statement Tuesday.
This initiative not only sequesters carbon but also promotes biodiversity and socioeconomic development within local communities.
According to the issuer, the newly launched bond represents a new model for leveraging private capital in support of environmental goals.
Investors are guaranteed a fixed coupon with an additional variable component tied to the CRUs generated by the projects.
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If successful, the bond could yield higher returns compared to similar World Bank bonds, contingent on the successful creation and sale of CRUs.
Bond investors will waive a portion of their coupon payments, with those amounts redirected through a hedge transaction with lead manager HSBC (LSE: HSBA; NYSE: HSBC) to fund Mombak’s reforestation projects.
This bond has attracted significant interest from private investors who are increasingly eager to align their financial goals with positive environmental impacts, the World Bank said.
Leading investors, including Nuveen, T Rowe Price, Mackenzie Investments, and others, expressed their commitment to the bond, emphasizing the dual benefits of measurable environmental impact and potentially attractive financial returns.
The bond underscores the growing trend of outcome-based financing in sustainable development, offering a promising template for future investments aimed at addressing climate change and promoting biodiversity.
Read more: World Bank Announces New Outcome Bond To Fund Amazon Reforestation In Brazil