The World Bank issued a US$225-million, principal-protected nine-year bond linked to reforestation in the Amazon, the global lender said on Tuesday, calling it the biggest outcome bond it has ever priced.
The 2033 bond offers investors a return linked to the creation of carbon removal units from reforestation initiatives in Brazil’s Amazon rain forest, said the bank.
The World Bank said this issuance marks the first bond to link investors’ financial returns to carbon removal, a departure from previous deals tied to the sale of carbon credits from avoided emissions.
Close to US$36-million will be directed to support the reforestation activities of Mombak, a Brazilian company working with local landowners to replant native tree species in the Amazon. Separately, Microsoft Corp. agreed to purchase the carbon removal units.
The bond is 100 per cent principal-protected, with the US$225-million proceeds used to back the World Bank’s sustainable development initiatives worldwide, the lender said.
The issue has a minimum guaranteed annual return of about 1.745 per cent, and up to 4.362 per cent if the projects perform as expected, according to the World Bank.
“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,” said Jorge Familiar, vice-president and treasurer at the World Bank.
“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, issued by the International Bank for Reconstruction and Development, was priced at par and will mature on July 31, 2033. Settlement is scheduled for Aug. 20.