SAO PAULO, (Reuters) – The World Bank said yesterday it will issue a new bond expected to raise some $200 million to support its sustainability activities and reforestation in Brazil’s Amazon, and has chosen HSBC HSBA.L to structure the transaction.
The principal-protected bond will support the World Bank’s sustainable development activities and provide financing for reforestation projects selected by Brazilian startup Mombak through the foregone coupon payments.
Mombak, which buys degraded land from farmers and ranchers or partners with them to replant native species in the world’s largest rainforest, generates CO2 removal credits that can be sold in carbon markets.
“This transaction is a continuation of this market we’re trying to develop,” World Bank Vice President Jorge Familiar told Reuters, referring to the so-called “outcome bond” model the bank launched earlier this decade.
Such bonds, according to the lender, allow investors to support specific sustainable projects and outcomes. They harness private capital and transfer project performance risk to investors, who are rewarded if the activities are successful.
Similar initiatives by the World Bank include a $100 million bond to finance plastic-reduction projects in Ghana and Indonesia and a $150 million bond to support efforts to increase the endangered black rhino population in South Africa.
“The principal will support World Bank operations, but the coupon will support a project that is not a World Bank project but is very important, in a very important area,” Familiar said.
Mombak, which is backed by investors such as Bain Capital and AXA and has sold carbon credits to firms like McLaren and Microsoft MSFT.O, hopes the move will be a game-changer for the nascent carbon removal industry in Brazil.
Seen as risky by many investors, the sector has struggled to get loans to reduce the cost of capital and finance operations, which are expensive as firms need to buy land and plant trees, Mombak co-founder Peter Fernandez said.
“You need a lot of money to do reforestation; and because it’s so new, the cost of capital is quite high,” Fernandez noted, adding that the transaction might help unlock debt markets for others in the industry.
Critics of carbon offset markets, including Greenpeace, say they allow emitters to continue to release greenhouse gases.
Separately, the World Bank’s IFC arm and the Inter-American Development Bank’s IDB Invest arm said 22 new banks and other types of finance firms, including Citi and Visa, had joined the Amazonia Finance Network that the two development banks launched late last year. That takes the total to 46.
