Key Impact Points:
- The World Bank’s $225 million Amazon Reforestation-Linked Bond is the largest outcome bond ever issued by the institution.
- Investors’ returns are tied to the successful removal of carbon from the atmosphere, offering a new model for financing environmental projects.
- The bond mobilizes $36 million for Mombak’s reforestation efforts in Brazil, enhancing biodiversity and supporting local communities.
A New Era in Sustainable Investment
Private investors are increasingly embracing innovative financial models that link returns to measurable development outcomes. In a landmark move, the World Bank priced a 9-year, $225 million Amazon Reforestation-Linked Bond on August 13, 2024. This principal-protected bond offers a unique structure, where returns are tied not just to financial metrics but to the removal of carbon from the atmosphere via reforestation projects in Brazil’s Amazon rainforest.
Jorge Familiar, Vice President and Treasurer at the World Bank, highlighted the critical role of private capital in addressing climate change: “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.”
Mobilizing Capital for Reforestation
This transaction directs $36 million to Mombak, a Brazilian company that acquires land and partners with landowners in the Amazon to restore native tree species. The goal is to generate Carbon Removal Units (CRUs), a new model in which the return on investment is linked to the physical removal of carbon from the atmosphere. Unlike previous bonds linked to avoided emissions, this bond emphasizes active reforestation as a climate solution.
Greg Guyett, CEO of Global Banking & Markets at HSBC, explained: “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.”
Pioneering Investors Backing the Bond
The bond has garnered strong interest from leading global investors. Institutions like Nuveen, T Rowe Price, Mackenzie Investments, Rathbone Greenbank, and Velliv have all invested in this innovative financial instrument, which offers both the potential for financial returns and substantial environmental impact.
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Stephen M. Liberatore of Nuveen noted: “The removal of carbon from the atmosphere through the generation of Carbon Removal Units, 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.”
For T Rowe Price, the bond represents a convergence of environmental sustainability and financial innovation. Matt Lawton, Global Impact Credit Portfolio Manager, shared: “This innovative, outcomes-based transaction offers a unique combination of attractive financial return potential alongside material and measurable positive impact.”
The Future of Impact Investing
The World Bank’s Amazon Reforestation-Linked Outcome Bond is paving the way for new types of investments that align financial returns with environmental and social outcomes. As more private investors seek to support climate action, bonds like this will become increasingly critical in mobilizing the capital needed to protect the planet’s most vital ecosystems.
Hadiza Djataou of Mackenzie Investments emphasized the bond’s role in advancing sustainable finance: “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.”
Investors are keen to back projects that have a tangible impact on biodiversity and climate change. Thor Schultz Christensen of Velliv Pension summed up the sentiment: “This impact investment goes hand in hand with both the carbon-reduction, social and biodiversity priorities of Velliv.”
The Amazon Reforestation-Linked Bond is not just a financial instrument—it’s a step toward a more sustainable future, where investments drive positive environmental change on a global scale.
