High demand for world's first forest bond issue

More than $200 million, twice the targeted amount, raised to combat deforestation

LONDON • A green investment that for the first time channels private money into protecting forests has raised twice as much as planned.

A branch of the World Bank and miner BHP Billiton are backing the bond, which is also a first in allowing investors to opt to be paid in carbon credits rather than cash.

Three years in the making, the forest bond has raised US$152 million (S$212 million) from institutional investors, such as pension funds, to combat deforestation, seen as crucial to meeting a United Nations (UN) goal to keep rises in global warming below 2 deg C.

Mr Christian Grossmann, director of the climate change department at the World Bank's International Finance Corporation (IFC), said the aim was to be "a catalyser and have a demonstration effect" to inspire other issuers.

The IFC on Tuesday said the bond, issued on Oct 31, had been intended to be half the size, but was increased because of demand. It coincides with a two-week meeting of UN delegates that began in Morocco on Monday on implementing last year's Paris Agreement on climate change, which seeks to phase out greenhouse gas emissions this century.

Forestry is one of the issues that have proved a sticking point in previous negotiations, and carbon credits, meant to be used for planting trees or reducing emissions in other ways, did not translate into action.

The IFC said its five-year bond follows extensive checks to ensure the money tackles a problem that is wiping out an area of forest the size of Costa Rica each year and accounts for 20 per cent of greenhouse gases.

The bill to tackle deforestation amounts to many billions, but so far the green bond market, which Moody's Investors Service has said could reach US$75 billion this year, has focused on energy-saving and renewable projects such as solar.

The credits paid to investors will be for the Kasigau Corridor UN project to protect 200,000ha of dryland forest in south-eastern Kenya, which is under threat from slash- and-burn agriculture.

Those who opt to receive credits, or permits to emit one tonne of greenhouse gas, can either use them to cover emissions or sell them on the carbon credits market.


A version of this article appeared in the print edition of The Straits Times on November 10, 2016, with the headline 'High demand for world's first forest bond issue'. Subscribe