The World Bank has announced that it has issued a $225 million bond, with financial returns for investors tied to the generation of Carbon Removal Units (CRUs) from reforestation projects in the Brazilian Amazon rainforest.
The transaction is the first bond where financial returns are linked to the removal of carbon from the atmosphere (compared to previous bonds that were tied to carbon credits from avoided emissions) and is the World Bank’s highest-performing bond in its history.
Jorge Familiar, Vice President and Treasurer of the World Bank, said:
“As the historic participation rate in today’s transaction demonstrates, private investors are committed to linking their financial returns to positive development outcomes in the Amazon region. With this largest-ever performance bond, we continue to be encouraged by the growing interest in the structure as well as the expanded list of supported sectors.”
Under the terms of the nine-year, 100% principal-protected bond, investors will receive a coupon consisting of a fixed guaranteed component and a variable component tied to CRUs generated by reforestation projects of Brazil-based Mombak.
Founded in 2021, Mombak focuses on large-scale carbon removal projects, starting with reforestation of the Amazon rainforest with native, biodiverse species. The company’s solution aims to sequester carbon through large-scale reforestation of degraded, unproductive pastures with native tree species and assisted natural regeneration. Co-benefits include reversing biodiversity loss, improving watersheds, and creating jobs and social impacts in local communities. Mombak recently signed one of the largest offtake agreements for nature-based carbon removal with Microsoft.
Proceeds from the bond will be used to support the World Bank’s global sustainable development activities. In addition, investors will forgo a portion of the normal coupon payments, which will be given to Mombak via a hedging transaction to help finance the reforestation projects. The transaction is expected to mobilize approximately US$36 million to support Mombak’s projects.
HSBC acted as lead manager on the deal and is supporting the hedging transaction. The CRUs generated from the project will be purchased by a CRU buyer under an offtake agreement, with a portion of the revenue generated being paid to bondholders in the form of CRU-linked interest. According to the World Bank, the bond can provide a financial advantage to investors compared to World Bank bonds of similar maturity if the CRU revenues are generated as expected.
Greg Guyett, CEO of Global Banking & Markets at HSBC, said:
“We are delighted to be working with the World Bank on this innovative bond to support the reforestation of thousands of hectares of the Brazilian Amazon rainforest. We want to help our clients finance sustainable development projects that make a difference in the fight against climate change.”
Investors in the new bond included Nuveen, T. Rowe Price, Mackenzie Investments, Rathbones Group and Velliv.
Matt Lawton, CFA, Global Impact Credit Portfolio Manager, T Rowe Price, said:
“T Rowe Price is very proud to be a lead investor in the World Bank’s groundbreaking Amazon Reforestation-Linked Outcome Bond. This innovative, outcome-driven transaction offers a unique combination of attractive financial return potential and material and measurable positive impact. We believe this bond will deliver additional benefits by removing carbon, enhancing biodiversity and supporting job creation.”
