The World Bank’s International Bank for Reconstruction and Development (IBRD) has priced a 9-year, USD 225 million Amazon Reforestation-Linked Bond, the largest outcome bond ever issued by the World Bank. This principal-protected bond offers investors a coupon with both a fixed guaranteed component and a variable component tied to the generation of Carbon Removal Units (CRUs) from reforestation projects in Brazil’s Amazon rainforest. Unlike previous bonds linked to carbon credits from avoided emissions, this bond links financial returns directly to carbon removal from the air.
The transaction mobilises approximately $36 million to support the reforestation efforts of Mombak, a Brazilian company. Mombak will use these funds to acquire land or partner with landowners in the Amazon to reforest areas with native tree species. Beyond carbon removal, this reforestation effort aims to boost biodiversity and support socioeconomic development in local communities. The innovative use of CRUs in this bond structure presents a new approach to attracting private capital for reforestation initiatives.
“A variety of partners and financing tools are needed to support the Amazon and help the people there pursue better livelihoods, protect its incredible biodiversity, and safeguard its global role in mitigating climate change,” said Jorge Familiar, Vice President and Treasurer, World Bank.
He added, “As demonstrated by the historic level of participation in today’s transaction, private investors are eager to connect their financial return to positive development outcomes in the Amazon region. With this largest ever outcome bond we continue to be encouraged by the growing interest in the structure as well as the expanded list of sectors supported.”
The bond is fully principal-protected, with the $225 million proceeds allocated to support the World Bank’s global sustainable development initiatives. Investors will forgo part of the regular coupon payments, which will instead be redirected through a hedge transaction with HSBC to finance Mombak’s projects.
CRUs generated will be acquired by a CRU off-taker under an off-take agreement. A portion of the revenue from this sale will be distributed to bondholders as CRU Linked Interest, in addition to the minimum guaranteed coupon from the World Bank. This bond offers potential financial benefits compared to typical World Bank bonds of similar maturity, provided the projects achieve the expected results and high-quality CRUs are successfully monetised.
“We are pleased to work alongside the World Bank on this innovative bond which aims to support the reforestation of thousands of hectares of the Brazilian Amazon rainforest. We are committed to helping our clients fund sustainable development projects that make a difference in the climate challenge,” said Greg Guyett, CEO of Global Banking & Markets, HSBC.
Nuveen, T Rowe Price, Mackenzie Investments, Rathbone Greenbank Global Sustainability Bond Fund and Velliv Pension are major investors in the bond.
“We are excited to be the largest investor in the World Bank’s innovative transaction that provides attractive relative valuation through the deployment of capital to reforestation projects within the Amazonian rainforest in a template-like structure,” said Stephen M. Liberatore, CFA, Senior Managing Director/Head of ESG/Impact – Global Fixed Income, Nuveen.
“T Rowe Price is very proud to be a lead investor in the World Bank’s pioneering Amazon Reforestation-Linked Outcome Bond. This innovative, outcomes-based transaction offers a unique combination of attractive financial return potential alongside material and measurable positive impact,” said Matt Lawton, CFA, Global Impact Credit Portfolio Manager, T Rowe Price.
“We believe the bond’s unique structure will prove to be both a strong investment and a catalyst for further innovation in the sustainable fixed income market,” said Hadiza Djataou, Vice President, Portfolio Manager, Fixed Income, Mackenzie Investments.
“We believe this particular bond offers both the exciting prospect of measurable environmental impact, and potentially attractive financial returns for our Ethical and Global Sustainability bond funds,” said Stuart Chilvers, co-fund manager of the Rathbone Greenbank Global Sustainability Bond Fund and portfolio manager for Rathbone Ethical Bond Fund.
“Velliv is very pleased to participate in the Amazon Reforestation-Linked Bond. This impact investment goes very well hand in hand with both the carbon-reduction, social and biodiversity priorities of Velliv,” said Thor Schultz Christensen, Deputy Chief Investment Officer, Velliv Pension.