World Bank-backed IFC launches $152m bond to prevent deforestation in developing countries
IFC, a member of the World Bank Group, issued a first-of-its-kind bond that gives investors the option of getting repaid in either carbon credits or cash, raising $152 million (€138.2m) to support private sector development and prevent deforestation in developing countries.
Each year, 5.5 million hectares of tropical forest area—an area approximately the size of Costa Rica–are deforested. Protecting forests is critical to keeping global warming under 2°C while offering an important opportunity to boost rural livelihoods and protect vital ecosystems.
“Halting deforestation is essential to meet the global community’s climate goals,” Jingdong Hua, IFC vice president and treasurer. “To do that, we need to mobilise $75 billion to $300 billion in the next decade. Much of this needs to come from the private sector, the IFC said in a statement. IFC’s Forests Bond demonstrates the power of innovative capital-market mechanisms to unlock private sector funds for forest protection.”
The five-year bond was sold to major global institutional investors—including CalSTRS, Treehouse Investments LLC, TIAA-CREF, and QBE. Proceeds will support IFC’s private sector lending in emerging markets. The bond will be listed on the London Stock Exchange.
Investors were offered a choice between a cash or carbon-credit coupon. A carbon credit is a tradable certificate or permit representing the right to emit one ton of carbon dioxide or another greenhouse gas with an equivalent to one ton of carbon dioxide. Investors choosing the carbon credit coupon can retire the credits to offset corporate greenhouse gas emissions, or sell them on the carbon market.
To pay investors a carbon credit coupon, IFC will buy carbon credits from a project that follows the United Nations Reducing Emissions from Deforestation and Forest Degradation, or REDD, scheme. A REDD project offers economic incentives to reduce deforestation and invest in low-carbon growth. The project from which IFC will purchase carbon credits is the Kasigau Corridor REDD project in Kenya.
IFC developed the Forests Bond with BHP Billiton and Conservation International. BHP Billiton is a global mining, metals, and petroleum company. Conservation International is a global non-profit environmental organisation.
BHP Billiton provides a price-support mechanism for the Forests Bond. If investors elect the cash coupon instead of the carbon coupon, BHP Billiton offtakes the carbon credits generated and delivered by the Kasigau Corridor REDD project.
Fiona Wild, BHP Billiton vice president Sustainability and Climate Change, said: “BHP Billiton is committed to operating sustainably and reducing our environmental footprint. IFC has been one of the pioneers in the green bond market as well as in climate financing. The innovative IFC Forests Bond provides us a new way to offer economic incentives to reduce deforestation and invest in low-carbon growth.”
Conservation International helped identify the project supported by the bond. “CI helps build the global system that makes forests more valuable when they’re standing than when they’re cut,” said Agustin Silvani, vice president of the organisation’s Conservation Finance Division. “We are pleased to see the successful issuance of this innovative instrument and will continue to work with business and community leaders to develop more sustainable forest protection models.”