The World Bank has issued its largest ever outcome bond, priced at $225m, aiming to tackle the widespread deforestation of the Amazon rainforest.
The 100% principal protected World Bank Amazon Reforestation Outcome Bond is designed to provide 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.
According to the World Bank, 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.
See also: Discounting net zero: Investment trust sector ‘re-embracing’ ESG values
Through the transaction, approximately $36m of capital will be mobilised to support the reforestation activities of Mombak, a Brazilian based company. The company will use these funds to acquire or enter into partnerships with landowners in the Amazon rainforest to reforest the land with native tree species, while also aiming to enhance biodiversity and foster socioeconomic development in local communities.
“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 at the World Bank.
“As demonstrated by the historic level of participation in this 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.”
‘An exciting prospect’
Rathbone Asset Management is one of the lead investors in the bond, with both the Rathbone Ethical Bond fund and the Rathbone Greenbank Global Sustainable Bond fund, managed by head of fixed income Bryn Jones and fund manager Stuart Chilvers, are now invested.
Commenting on the launch, Chilvers said: “We are thrilled to support this innovative transaction that will provide funding to reforestation efforts in the Brazilian Amazon – a globally crucial region. We believe this bond offers both the exciting prospect of measurable environmental impact, and potentially attractive financial returns for our funds.”
See also: Bfinance: ESG spending has ‘increased materially’ for 89% of asset managers
Meanwhile, Stephen Liberatore, senior managing director and head of ESG and impact, global fixed income, at Nuveen said, “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.
“The removal of carbon from the atmosphere through the generation of Carbon Removal Units that will be subject to ongoing verification by an independent third party, enhanced biodiversity and socioeconomic development in local communities align with our focus on investing in securities that have a direct and measurable social and/or environmental impact.”
This article was first seen in our sister publication PA Future
