World Bank introduces innovative $100 million plastic waste reduction-linked bond to tackle plastic pollution

Citi served as the Lead Manager for this pioneering outcome bond, mobilizing private capital to support projects with positive climate and development impacts.

World Bank introduces innovative $100 million plastic waste reduction-linked bond, image credit: Reuters

The World Bank (International Bank for Reconstruction and Development, IBRD) has unveiled a groundbreaking seven-year USD 100 million Plastic Waste Reduction-Linked Bond.

According to the World Bank, this innovative financial instrument ties investor returns to Plastic Waste Collection Credits, Plastic Waste Recycling Credits, and Voluntary Carbon Units expected to be generated by projects in Ghana and Indonesia.

The selected projects aim to reduce and recycle plastic waste in vulnerable communities, addressing the global challenge of plastics leaking into nature and oceans.

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Citi served as the Lead Manager for this pioneering outcome bond, mobilizing private capital to support projects with positive climate and development impacts.

Investors in the bond are contributing approximately USD 14 million in upfront financing to enhance the capacity of existing facilities, expand to new collection and recycling sites, and install food-grade recycling equipment in the selected projects.

Beyond curbing plastic pollution, these projects aim to improve local pollution and air quality, reduce associated health impacts, and create jobs in marginalized communities.

The Plastic Waste Reduction-Linked Bond introduces a new approach to financing plastic collection and recycling operations, emphasizing the prevention of plastic waste leakage into the ocean.

The bond is 100 per cent principal protected, with the USD 100 million proceeds supporting the World Bank's sustainable development activities globally.
Notably, 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. Instead, equivalent amounts will be provided, through a hedge transaction with Citi, to support the financing of the projects managed by Plastic Collective UK.

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

This structure 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 perform as expected.

Anshula Kant, Managing Director and World Bank Group Chief Financial Officer said, "Given the huge needs for development, channelling 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.

Philip Brown, Global Head of Sustainable Debt Capital Markets at Citi, expressed pride in the innovative use of VERRA-registered plastic credits to finance projects that reduce plastic pollution. The bond responds to investor appetite for transactions with direct and quantifiable development impact.

Several leading investors, including Velliv, Skandia, Mackenzie Investments, T. Rowe Price, and Muzinich & Co., have participated in the Plastic Waste Reduction-Linked Bond.

They emphasized the bond's impact on reducing plastic waste and creating economic opportunities for underserved communities, showcasing the potential for impactful and sustainable investments.

The Plastic Waste Reduction-Linked Bond marks a step towards addressing the global plastic crisis through innovative financial instruments and collaborative efforts between the public and private sectors.

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World Bank International Bank for Reconstruction and Development (IBRD)