London Stock Exchange welcomes IFC
London Stock Exchange today welcomed IFC 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 raised $152 million to support private sector development and prevent deforestation in developing countries.
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..
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.”
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.
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 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.
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 investors.
Citi is the calculation, paying, transfer and settlement agent for the bond.
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. To date, IFC has raised climate finance through a variety of innovative instruments including $5.6 billion in green bonds.