The World Bank, through its lending arm The International Bank for Reconstruction and Development (IBRD), has priced a seven-year US$100 million, principal-protected plastic waste reduction-linked bond.

This innovative bond provides investors with a financial return linked to plastic waste collection credits, plastic waste recycling credits (collectively, plastic credits), and voluntary carbon units (carbon credits) expected to be generated by two projects in Indonesia and Ghana. Citi acted as lead manager for the transaction.

The bond is 100% principal-protected with the US$100 million proceeds used to support the World Bank’s sustainable development activities globally.

Investors in the so-called outcome bond will forego a portion of ordinary coupon payments, with the equivalent amounts instead being provided, through a hedge transaction with Citi, to support the financing of the projects selected by Plastic Collective UK, which manages the projects' plastic and carbon credit programmes.

In return, the investors will receive annual coupons composed of a fixed amount plus payments linked to the sale of a portion of the plastic and carbon credits produced by the projects.

Quantifiable impact

The bond offers investors a potential financial benefit compared to regular World Bank bonds of similar maturity if the projects and monetization of plastic and carbon credits by Plastic Collective UK perform as expected.

Through the transaction, investors are providing approximately US$14 million in up-front financing required by the projects.

In Indonesia, financing from the bond will be used to support the SEArcular Project, a plastic waste collection and recycling project established in Surabaya in 2018.

The project empowers coastal communities by providing training, employment and price premiums for the ocean-bound plastic they collect. The funding will also be used to install a food-grade PET (polyethylene terephthalate) recycling production line in Surabaya and will provide several developmental co-benefits, including the provision of plastic waste management services for poor and underserved coastal communities, access to cleaner water, and protection of marine life through reduced plastic pollution.

“This outcome bond allows fixed-income investors to support development projects that would otherwise struggle to secure financing,” says Philip Brown, global head of sustainable debt capital markets at Citi. “We’re also responding to investor appetite for transactions with direct and quantifiable development impact. We are hopeful that these transactions will inspire others – and drive further positive change.”