The World Bank has been recognised for its innovative $50 million emission reduction-linked bond issued in February 2023 which links its coupon payments to verified carbon credits generated by a water purification project.

The coupon on the five-year bond is foregone by investors, with the equivalent coupon amounts being used to finance a water purifier project being developed by a private firm in Vietnam, SIPCO. Returns generated by the Verra Registry-listed Verified Carbon Unit (VCU) credits from this project, however, will be distributed to investors as an alternative coupon.

"This type of outcome bond provides a unique way for capital markets investors to support climate-friendly development projects through a tradable, high-grade investment product, that aligns investor returns with project success," said World Bank vice president and treasurer Jorge Familiar.

"By securitising the flow of future carbon credits, the Emission Reduction-Linked Bond mobilised much-needed private capital to support a water purification project in Vietnam that aims to provide over two million children with clean water and reduce greenhouse gas emissions by almost six million tons of carbon dioxide," he added.

Philip Brown, sustainable debt capital markets head at Citi – which arranged and underwrote the bond – said the "innovative" fixed income transaction was an "exciting and scalable solution" for providing high-grade capital market structures to finance Verified Carbon Standard (VCS)-eligible projects around the world.

The 'outcome bond' from the World Bank built on the innovative wildlife conservation bond – or 'rhino' bond – issued by the institution in 2022.

Familiar said that the World Bank is already working on several potential outcome bonds to support further development projects, including plastic waste reduction, agro-forestry, and the blue economy.