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On November 8, 2016, IFC opened trading on the London Stock Exchange to mark the listing of its innovative Forests Bond, a first-of-its-kind bond that gives investors the option of getting repaid in either carbon credits or cash. The bond, which raised $152 million, will support IFC’s private sector lending and prevent deforestation in developing countries.
"Every time IFC comes to market I think they cannot do anything more creative and every time they prove us wrong" said Nikhil Rathi, Chief Executive Officer of the London Stock Exchange.
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 degrees Celsius 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,” said Jingdong Hua, IFC Vice President and Treasurer. “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.
Investors were offered a choice between a cash or carbon-credit coupon. Investors choosing the carbon credit coupon can retire the credits to offset corporate greenhouse gas emissions, or sell them on the carbon market.
IFC developed the Forests Bond with BHP Billiton and Conservation International. 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. Conservation International helped identify the project supported by the bond.
To date, IFC has raised climate finance through a variety of innovative instruments including $5.6 billion in green bonds. Green bond proceeds are set aside and invested exclusively in climate-smart projects such as energy efficiency and renewable energy.
Please click here to read more about the Forests bond and the project it supports.