Increasing number of private investors support outcome bonds which link financial return to measurable and impactful development outcomes
WASHINGTON, August 13, 2024 ¡ª ľ¹ÏÓ°Ôº (International Bank for Reconstruction and Development, IBRD) today 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.
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, the reforestation enhances biodiversity and fosters socioeconomic 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, 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 to 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.
¡°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.
¡°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,¡± said Stephen M. Liberatore, CFA, Senior Managing Director/Head of ESG/Impact ¨C Global Fixed Income, Nuveen.
"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,¡± said Matt Lawton, CFA, Global Impact Credit Portfolio Manager, T Rowe Price.
"Mackenzie Investments is proud to partner with the World Bank by investing in the USD 225 million Amazon Reforestation-Linked Outcome Bond. This transaction, in partnership with Mombak, offers a landmark opportunity in nature positive investment while supporting land stewardship principles. We believe the bond¡¯s unique structure will prove to be both a strong investment and a catalyst for further innovation in the sustainable fixed income market," said Hadiza Djataou, Vice President, Portfolio Manager, Fixed Income, Mackenzie Investments.
¡°We are delighted to be an initial investor in the World Bank Amazon Reforestation-Linked Outcome Bond and support an innovative transaction, that will provide funding to reforestation efforts in the Brazilian Amazon ¨C a globally crucial region. We believe this particular bond offers both the exciting prospect of measurable environmental impact, and potentially attractive financial returns for our Ethical and Global Sustainability bond funds,¡± said Stuart Chilvers, co-fund manager of the Rathbone Greenbank Global Sustainability Bond Fund and portfolio manager for Rathbone Ethical Bond Fund.
¡°Velliv is very pleased to participate in the Amazon Reforestation-Linked Bond. This impact investment goes very well hand in hand with both the carbon-reduction, social and biodiversity priorities of Velliv. Velliv is pleased the transaction has identified Mombak to carry out the groundwork and succeed with this important objective,¡± said Thor Schultz Christensen, Deputy Chief Investment Officer, Velliv Pension.
Transaction Summary
Issuer | IBRD |
Size (Aggregate Nominal Amount) | USD 225,000,000 |
Trade Date | August 13, 2024 |
Settlement Date | August 20, 2024 |
Maturity Date | July 31, 2033 |
Issue Price | 100 percent of the Aggregate Nominal Amount |
Interest Amount | Annual Interest Amount + CRU Linked Interest Amount + Catch Up Coupon Amount (if any) |
Annual Interest Amount | For the first Interest Payment Date, USD 1,652.90 per Calculation Amount and for each subsequent Interest Payment Date 1.745 percent paid annually |
CRU Linked Interest Amount | A payment linked to the number of CRUs, paid annually on each Interest Payment Date |
Redemption amount | Redemption at Par |
Lead Manager | HSBC |
Listing | Luxembourg Stock Exchange |
CONTACT
Investor Relations and Sustainable Finance
World Bank Treasury
debtsecurities@worldbank.org
About World Bank
ľ¹ÏÓ°Ôº (International Bank for Reconstruction and Development, IBRD), rated Aaa/AAA (Moody¡¯s/S&P), is an international organization. Created in 1944, it is the original member of the World Bank Group and operates as a global development cooperative owned by 189 nations. ľ¹ÏÓ°Ôº provides loans, guarantees, risk management products, and advisory services to middle-income and other creditworthy countries to support the Sustainable Development Goals and to end extreme poverty and promote shared prosperity. It also provides leadership to coordinate regional and global responses to development challenges. ľ¹ÏÓ°Ôº has been issuing sustainable development bonds in the international capital markets for over 70 years to fund programs and activities that achieve a positive impact. More information on World Bank bonds is available at www.worldbank.org/debtsecurities.
World Bank bonds support the financing of programs that further the Sustainable Development Goals (SDGs). World Bank bonds are aligned with the Sustainability Bond Guidelines published by the International Capital Market Association and as such support the financing of a combination of green and social, i.e., ¡°sustainable development¡± projects, programs and activities in IBRD member countries as described in the World Bank .
Disclaimers
Net proceeds of the bonds described herein are not committed or earmarked for lending to, or financing of, any particular World Bank projects or programs.
This press release is not an offer for sale of securities of the International Bank for Reconstruction and Development ("IBRD"), also known in the capital markets as "World Bank". Any offering of World Bank securities will take place solely on the basis of the relevant offering documentation including, but not limited to, the prospectus, term sheet and/or final terms, as applicable, prepared by the World Bank or on behalf of the World Bank, and is subject to restrictions under the laws of several countries. World Bank securities may not be offered or sold except in compliance with all such laws. ľ¹ÏÓ°Ôº Sustainable Development Bond Framework, the World Bank¡¯s Sustainable Development Bond Impact Report, and the information set forth therein are not a part of, or incorporated by reference into, the offering documentation.
