WB issues world’s 1st carbon removal bond to fund Amazon reforestation

Sub : Env

Sec: Int Conventions

Context:

A new bond links investors’ financial returns to the amount of carbon removed from the atmosphere to help save the Amazon rainforest.

Details:

The World Bank issued a nine-year, $225 million note to fund reforestation in the Amazon, with returns tied to the climate impact of newly planted trees.
Investors receive a fixed annual coupon of 1.745%, lower than similar World Bank bonds, with $36 million in foregone coupons funding Brazilian startup Mombak Gestora de Recursos Ltda.’s reforestation efforts.
Mombak will use the funds to partner with landowners to reforest land with native trees, producing carbon credits to be sold to Microsoft Corp.
Bondholders get an additional variable coupon from the revenue generated by the sale of carbon credits, potentially earning a total annualized yield of 4.362%.
The bond is Triple A rated with full capital protection and a guaranteed minimum coupon.

ESG Shift and Market Trends:

The bond reflects a shift in voluntary carbon markets, where buyers pay more for carbon removal projects, such as reforestation, rather than merely avoiding emissions.
Carbon removal credits are more expensive, and credits linked to stopping deforestation are under scrutiny for potential greenwashing.
As the market matures, buyers are increasingly focused on the quality of carbon credits, with companies like Microsoft prioritizing carbon removal over emission reduction credits.

Source: BS