World Bank Issues $225 Million Bond Linked to Reforestation in Amazon - Biggest Outcome Bond Ever Priced
In a groundbreaking move, the World Bank has issued a $225 million, principal-protected nine-year bond tied to reforestation efforts in the Amazon. This innovative bond, set to mature in 2033, offers investors a return based on the creation of carbon removal units from reforestation projects in Brazil's Amazon rainforest.
Unlike previous bonds linked to carbon credits from avoided emissions, this bond directly ties investors' financial returns to carbon removal. A significant portion of the proceeds, close to $36 million, will support reforestation activities led by Brazilian company Mombak, which is working with local landowners to replant native tree species in the Amazon. Additionally, tech giant Microsoft has agreed to purchase the carbon removal units generated by these projects.
The bond is 100% principal-protected, with the proceeds going towards the World Bank's sustainable development initiatives worldwide. It offers a minimum guaranteed annual return of about 1.745%, with the potential to reach up to 4.362% if the projects perform as expected.
Jorge Familiar, vice president and treasurer at the World Bank, highlighted the historic level of participation in this transaction, emphasizing investors' eagerness to align their financial returns with positive development outcomes in the Amazon region. The bond, issued by the International Bank for Reconstruction and Development, was priced at par and is set to mature on July 31, 2033, with settlement scheduled for Aug. 20.
Analysis:
This innovative bond from the World Bank presents a unique opportunity for investors to support environmental conservation efforts while earning a financial return. By tying the bond's performance to carbon removal units generated from reforestation projects in the Amazon, investors can contribute to positive development outcomes in the region. This bond not only provides a way to invest responsibly but also demonstrates a growing interest in sustainable finance structures that benefit both investors and the environment.