The World Bank is issuing a new bond expected to raise approximately $200 million to support reforestation efforts in Brazil’s Amazon rainforest. The bank has selected HSBC to structure the transaction.
The principal-protected bond will provide financing for reforestation initiatives selected by the Brazilian startup Mombak. Additionally, Mombak buys degraded land from farmers and ranchers or partners with them to replant native species in the Amazon.
Carbon credit-linked returns
Mombak’s business model generates carbon dioxide removal credits that can be sold in carbon markets. Furthermore, a portion of the bond’s targeted return will be linked to the value of the credits generated by the projects, according to the World Bank.
Continuation of “outcome bond” model
“This transaction is a continuation of this market we’re trying to develop,” said World Bank Vice President Jorge Familiar, referring to the “outcome bond” model the bank launched earlier this decade. These bonds allow investors to support specific sustainable projects and their outcomes, harnessing private capital and transferring project performance risk to investors.
Similar World Bank initiatives
Moreover, the World Bank has launched similar initiatives, including 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.
Potential game-changer for Brazil’s carbon removal industry
Mombak, which is backed by investors like Bain Capital and AXA and has sold carbon credits to companies like McLaren and Microsoft, hopes this move will be a game changer for the nascent carbon removal industry in Brazil. In addition, the sector has faced challenges in obtaining loans to reduce the cost of capital and finance operations, which are expensive as firms need to buy land and plant trees, according to Mombak co-founder Peter Fernandez.
Expansion of Amazonia Finance Network
Meanwhile, the World Bank’s IFC arm and the Inter-American Development Bank’s IDB Invest arm have announced that 22 new banks and other finance firms, including Citi and Visa, have joined the Amazonia Finance Network that the two development banks launched late last year, bringing the total to 46.
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