In February 2023, the World Bank issued$50 million Emission Reduction-Linked
Notes that mobilized private capital tofinance a water purifier project inVietnam and provides bond investors
with a return linked to carbon credits
generated by the project.
The innovative outcome bond provides financing to a
project that will make clean water available to two million
school children in Vietnam and reduce greenhouse gas
emissions by almost three million tons of carbon dioxideover the 5 years of the bond.

Background
Project developers often struggle to secure the upfront
financing that is required to initiate and implement projects
that will generate positive climate impacts such as reducing
emissions. Carbon markets can support these projects,
with buyers purchasing the verified carbon credits once
generated. However, there is a timing mismatch between
the financing required and the future carbon credit sales
revenue of projects.
In Vietnam, a private project developer needed funds for awater purification project that aimed to manufacture anddistribute 300,000 water purifiers to 8,000 schools andinstitutions in Vietnam. The purifiers would make cleanwater available to around two million school children while
also mitigating greenhouse gas emissions by avoiding theburning of biomass to purify water. The project aims toachieve positive development and climate impacts,
improving drinking water quality, improving public health,reducing deforestation, and reducing carbon emissions.

Objectives of the bond
The objective of the Emission Reduction-Linked Notes is tomake up-front financing available by securitizing potential
future carbon credit sales revenue.
The bond mobilizes and channels funds from IBRD bondinvestors to support the financing needs of the Vietnam
water purifier project, by diverting ordinary bond coupons tothe project and linking investors’ returns to the future carbon
credit sales revenue from the project.

Financial Solution
The World Bank issued a five-year $50 million, principal
protected Emission Reduction-Linked Notes with 100% of
the proceeds used to finance the World Bank’s sustainable
development projects and activities globally.
Unlike regular World Bank bonds, the bond investors
forego ordinary interest payments. These coupons areinstead converted to an equivalent upfront amount ($7.2million) and transferred (through an offtake agreementwith the carbon credit purchaser) to the project developer
in Vietnam. The project developer uses these funds tofinance the water purification project that aims to
manufacture and distribute water purifiers to schools andinstitutions in Vietnam.
The project is expected to generate 600,000 carbon credits
per annum over the next 10 years. The project developer
entered into a purchase agreement whereby they agreed
to sell a portion of the verified carbon credits to the offtake
purchaser for a fixed price in the future. Sales proceedsfrom the first 1.8 million of verified carbon credits will beused to provide the return to the bond investors who gaveup ordinary interest payments. Therefore, the bondinvestors will earn semi-annual coupon payments linked
to the issuance of verified carbon credits times a fixedprice (up to $10.4 million total coupon payments).
Irrespective of the project performance, investors will
receive the return of bond principal plus a minimum
return (from issuing below par) at maturity.

OutcomeThe Emission Reduction-Linked Bond was a groundbreaking
approach to raise financing for a climate friendly project. Keyfeatures included:•••

100% principal protected bond with investors receiving
the return of principal plus a minimum return atmaturity
Use of forgone ordinary bond coupons (monetizedthrough an interest rate swap) to make upfront
financing available to a climate friendly project that willgenerate carbon credits in the future
By securitizing the future carbon credit sales revenue,
bond investors earn coupons linked to the number ofverified carbon credits generated by a project

The bond was privately placed with three institutional
investors and the structure has the potential to serve as amodel for replication to support other climate friendly anddevelopment projects globally.

World Bank’s Role
The World Bank (International Bank for Reconstruction andDevelopment or IBRD) is the issuer of the bond. An
evaluation of the project, the emission reduction
methodology and the carbon registry benefited from input
from the World Bank’s Climate Change Group and Country
Management Unit (CMU).
Working closely with internal groups including LEGFI, theClimate Change Group, CMU and WFA, TRE led thestructuring and execution of the transaction. Thistransaction benefited from the World Bank’s large
institutional
investor baseandbond
issuance
infrastructure.

Transaction Summary
Size / Maturity

USD 50 million / 5-year

RatingAAAp by S&P

Issue Price
Redemption Payment
Issue Date

97.38 %
Redemption at Par
February 22, 2023

Maturity Date

March 31, 2028

VCU Linked Interest

Linked to the number of Verified Carbon
Units (VCUs) issued by Verra for the water
purifier project, paid semi-annually subject
to a cap

Transaction Structure

Contact: Michael Bennett, Manager, Market Solutions and Structured Finance, The World Bank Treasury
 mbennett1@worldbank.org  +1 (202) 458 5099
1225 Connecticut Avenue NW, Washington, D.C., 20433, U.S.A.