Washington, October 31, 2016—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 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 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,” Jingdong Hua, IFC Vice President
and Treasurer. “To do that, we need to mobilize $75 billion to $300 billion
in the next decade. Much of this needs to come from the private sector.
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 nonprofit
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 organization’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.”
“It’s exciting and extremely encouraging
to see the climate finance market continue to move forward with a steady
stream of unique deals that offer attractive valuations for investors,
while at the same time, delivering a positive environmental impact."
said Stephen M. Liberatore, managing director at TIAA Global Asset Management
responsible for ESG fixed income strategies, including the TIAA-CREF Social
Choice Bond Fund. “Prudently deploying capital on worthy projects that
address global climate change by helping to reduce deforestation can have
great potential benefits for both investors and society.”
“QBE is very pleased to have played a part
in bringing this transaction to market. We are always interested in supporting
issuers who share our desire to play a catalytic role in blending social
or environmental responsibility with innovation, investment and funding
programs. This type of asset will support our Premiums4Good initiative,
channelling premiums received into assets that seek to deliver on a social
or environmental objective in addition to meeting risk and return criteria”
Placement agents Bank of America Merrill
Lynch, BNP Paribas and J.P. Morgan played an important role in fine-tuning
the bond structure by road-testing the design with a broad set of potential
"J.P. Morgan is proud to be part of
IFC's innovative new forestry bond, said Marilyn Ceci, Managing Director,
Head of Green Bonds, J.P. Morgan."We are pleased to bring together
like-minded investors and issuers in this first-of-its-kind offering and
provide new opportunities through which social and environmentally-conscious
participants in the bond market can help mitigate climate change."
Citi is the calculation, paying, transfer
and settlement agent for the bond.
“Citi is highly committed to supporting
solutions leading to sustainable growth and we are pleased to contribute
to the launch of this innovative financial instrument,” Dirk Jones, Global
Head of Issuer Services at Citi said. “We look forward to leveraging our
global network and agency and trust expertise to facilitate the IFC’ mission
to integrate environmental factors into capital allocation and portfolio
Wildlife Works operates the Kasigau Corridor
REDD project, which enables tens of thousands of rural farmers in Kenya
to benefit from voluntarily agreeing to protect an important migration
corridor for endangered African elephants.
Mike Korchinsky, CEO and Founder of Wildlife
Works, said: "This landmark deal proves that high finance can have
high impact at scale in the conservation of forests and biodiversity. It
has brought the importance of REDD to the global financial community in
an innovative low risk way, and it will bring critical stability to the
world’s pioneering best-in-class REDD project rewarding this Kenyan community
for their leadership in global forest conservation."
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.
IFC is one of the world’s largest financiers
of climate-smart projects in developing countries, with climate-smart investments
totaling over $13 billion over the last decade. As part of its Climate
Implementation Plan, IFC has committed to lead efforts in catalyzing $13
billion a year in private sector capital for climate investment by 2020.
IFC Forests bond terms and conditions:
Issuer:International Finance Corp
Issuer rating: Aaa / AAA (all Stable)
Size:USD 152 Million
Coupon:1.546% annual USD fixed rate
amount (default option) or VCU coupon equivalent VCU coupon calculation:
Should a noteholder elect to receive delivery of eligible VCUs, the noteholder
will receive a whole number of Eligible VCUs determined by rounding the
accrued interest amount for such Noteholder’s Notes up to the nearest
number divisible by 5, and dividing by US$5.00 (which is the fixed price
per Eligible VCU)
Maturity: 4th November 2021 (5-year)
Settlement: 4th November 2016 (T+5)
Spread: $MS+ 18 bps
IFC, a member of the World Bank Group, is
the largest global development institution focused on the private sector
in emerging markets. Working with 2,000 businesses worldwide, we use our
six decades of experience to create opportunity where it’s needed most.
In FY16, our long-term investments in developing countries rose to nearly
$19 billion, leveraging our capital, expertise and influence to help the
private sector end extreme poverty and boost shared prosperity. For more
information, visit www.ifc.org