Investors support Amazon reforestation through record breaking USD 225 million World Bank outcome bond

The World Bank (International Bank for Reconstruction and Development, IBRD) priced a 9-year USD 225 million, principal-protected Amazon Reforestation-Linked Bond.

The largest World Bank outcome bond ever priced provides 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. 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.

“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. It was a privilege for HSBC to structure the transaction and act as sole lead manager on the World Bank’s largest-ever outcome bond issuance to date,” said Greg Guyett, CEO of Global Banking & Markets, HSBC.

Through the transaction, approximately USD 36 million of capital is mobilized to support the reforestation activities of Mombak, a Brazilian-based company. The company uses these funds to acquire or enter into partnerships with landowners in the Amazon rainforest to reforest the land with native tree species. In addition to removing carbon, reforestation enhances biodiversity and fosters socio-economic development in local communities. The innovative use of CRUs in this outcome bond structure introduces a new model for mobilizing private capital to support reforestation finance.

“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, of 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. 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 100% principal protected with the USD 225 million proceeds used to support the World Bank’s sustainable development activities globally. Investors in the bond will forego a portion of the ordinary coupon payments, with the equivalent amounts instead being provided, through a hedge transaction with HSBC, to support the financing of the Mombak projects.

The Mombak reforestation projects align with the World Bank’s priorities in the Amazon and are not financed by IBRD lending. The generated CRUs will be purchased through an offtake agreement by a CRU off-taker. A portion of the revenue generated from this sale will be paid to bondholders in the form of CRU Linked Interest, in addition to the minimum guaranteed coupon the World Bank will pay investors. The bond offers investors a potential financial benefit compared to regular World Bank bonds of similar maturity if the projects and monetization of high-quality CRUs are generated as expected.