World Bank issues $100m bond to cut, recycle plastic waste

26 / 01 / 2024

By Marwa Nassar - -

The World Bank priced a seven-year $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. The selected projects in Ghana and Indonesia aim to reduce and recycle plastic waste in vulnerable communities, cutting plastics leaking into nature and oceans. Citi acted as Lead Manager for the transaction.

This ground-breaking outcome bond mobilizes private capital to support the financing of projects with positive climate and development impacts – with outcomes measured by the generation of plastic and carbon credits issued on the Verra Registry.

Through the transaction, investors are providing approximately $14 million in up-front financing required by the projects to increase capacity at existing facilities, expand to new collection and recycling sites, and install food-grade recycling equipment.

In addition to reducing plastic pollution, the projects create improvements in local pollution and air quality, reduce associated health impacts, and create jobs in often overlooked and marginalized communities.

The innovative use of plastic credits in this transaction introduces an entirely new way of financing plastic collection and recycling operations as well as preventing plastic waste from leaking into the ocean.

“Given the huge needs for development, channeling private capital to support development challenges has been a fundamental part of our work. Outcome bonds, like the Plastic Waste Reduction-Linked Bond align incentives, so that investors benefit financially when positive development outcomes are achieved. They create a win-win with the local communities and ecosystems that benefit from less pollution, and we will continue issuing them,”said Anshula Kant, Managing Director and World Bank Group Chief Financial Officer.

The bond is 100% principal protected with the $100 million proceeds used to support the World Bank’s sustainable development activities globally. The plastic collection and recycling projects in Ghana and Indonesia are not World Bank projects. Investors in the 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, who manage the projects’ plastic and carbon credit programs. 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. 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.

“I am incredibly proud of the collaboration between the World Bank, Plastic Collective, and Citi in launching this fourth Outcome Bond. Our collective effort innovatively uses VERRA-registered plastic credits to support two projects to reduce plastic pollution — a huge global challenge with particularly devastating impacts on emerging markets. This Outcome Bond allows fixed income investors to support development projects that would otherwise struggle to secure financing. 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,” said Philip Brown, Global Head of Sustainable Debt Capital Markets, Citi.

“Velliv is very pleased to be a lead investor in the Plastic Waste Reduction-Linked Bond. This impact investment will support developing countries with local infrastructure for plastic waste collection and recycling projects to reduce land & ocean plastic leakage in regions where the challenge is greatest. At the same time, the projects will help to alleviate poverty by providing a sustainable source of income for local waste pickers,” said Asbjørn Purup Andersen, Senior Portfolio Manager, Velliv Pension.

“Skandia is very pleased to participate in the Plastic Waste Reduction-Linked Bond. It is a very good example of how pension capital can both generate a good return for our customers and at the same time contribute to solving some of today’s global challenges. The large amount of plastic that pollute the world’s oceans are everyone’s responsibility. I’m pleased that Skandia is participating and contributing to part of the solution,” said Alexander Onica, Head of Fixed Income and FX, Skandia.

“Mackenzie Investments is very pleased to participate in the launch of such an impactful Outcome Bond as a key investor. The bond offers a strong joint environmental and social profile, reducing plastic waste, while creating economic opportunities for underserved communities. Beyond its pioneering nature, we believe that its unique outcome-linked structure will provide an attractive return profile for our Canadian investors, enabling them to do well as a result of doing good,”said Hadiza Djataou, Vice President, Portfolio Manager, Fixed Income, Mackenzie Investments.

“We are very proud to partner with the World Bank on the Plastic Waste Reduction-Linked Bond. This innovative transaction will provide needed and targeted funding to support plastic collection and recycling efforts within Indonesia and Ghana. We believe this outcome-based bond offers a compelling combination of measurable environmental and social impact alongside an attractive economic return,” said Matt Lawton, CFA, Global Impact Credit Portfolio Manager, T. Rowe Price.

“We are keen to lend our support to innovative structures that enable funding to be channeled into ambitious outcome projects. We are delighted to be among the first investors funding this inaugural Plastic Waste Reduction-Linked Bond,” said Tatjana Greil-Castro, Co-Head of Public Markets, Muzinich & Co.