The World Bank announced that it has priced a $225 million bond, with financial returns to investors linked to the generation of carbon removal units (CRUs) from reforestation projects in Brazil’s Amazon rainforest.
The transaction marks the first bond to link financial returns to the removal of carbon from the atmosphere – compared with prior bonds tied to carbon credits from avoided emissions – as well as the World Bank’s largest-ever outcome bond.
Jorge Familiar, Vice President and Treasurer, World Bank, said:
“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.”
Under the terms of the 9-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 by Brazil-based company Mombak.
Founded in 2021, Mombak is focused on large-scale carbon removal projects, starting with native, biodiverse reforestation of the Amazon rainforest. The company’s solution targets capturing carbon through large-scale reforestation of degraded, unproductive pastureland with native tree species and assisted natural regeneration, with co-benefits including reversing biodiversity loss, improving watershed assets and generating employment and socialSocial criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. More impact in local communities. Mombak recently signed one of the largest-ever nature-based carbon removal offtake agreements with Microsoft.
Proceeds from the bond will be used to support the World Bank’s sustainable development activities globally. Additionally, investors will forgo a portion of the ordinary coupon payments, which will be allocated through a hedge transaction to Mombak to support the financing of the reforestation projects. The transaction is anticipated to mobilize approximately $36 million to support Mombak’s projects.
HSBC acted as lead manager on the deal, and is facilitating the hedge transaction. The CRUs generated from the project will be purchased through an offtake agreement by a CRU off-taker, with a portion of the revenue generated to be paid to bondholders in the form of CRU-Linked interest. According to the World Bank, the bond may provide a financial benefit to investors relative 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 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.”
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 pioneering Amazon Reforestation-Linked Outcome Bond. This innovative, outcomes-based transaction offers a unique combination of attractive financial return potential alongside material and measurable positive impact. We believe this bond will help deliver additionality through removing carbon, improving biodiversity, and supporting job creation.”