Mining giant BHP Billiton has put its weight, and $US12 million in funding, behind the development of a world-first “forests bond” – an investment vehicle that aims to achieve emission reductions through a combination of forest protection and community development activities.
The $US152 million bond, which is listed on the London Stock Exchange, was developed by BHP in conjunction with the International Finance Corporation, a member of the Word Bank Group and issuer of the bond.
The bond, which allows investors to receive either a cash coupon or carbon credits, has reportedly already attracted the likes of Australia insurance giant, QBE, JP Morgan and US pension giant CalSTRS and TIAA-CREF. It has a yield of 1.546 per cent.
Its primary focus will be on developing projects that support alternative livelihoods associated with the Wildlife Work’s Kasigau Corridor REDD Project in East Kenya.
BHP Billiton says the joint initiative is part of the global mining group’s commitment to demonstrating the validity of the REDD+ framework (Reducing Emissions from Deforestation and land Degradation), which provides economic, social and environmental incentives for developing countries to cut greenhouse gas emissions from deforestation and related activities through the creation of carbon credits.
BHP supported the Bond’s development by providing a price support mechanism that ensures the Kasigau Corridor REDD Project can sell a predefined minimum quantity of carbon credits until the Bond matures. REDD projects must usually sell a certain amount of VCUs each year to be sustainable.
According to the Australian Financial Review, it is understood BHP was keen to demonstrate how this sort of instrument can help reduce risks for investors keen to make direct investments in such projects, particularly in developing countries.
The company says it will also continue to provide direct support to environmental projects, such as the $US5 million announced in June, to support a REDD+ project in Alto Mayo in Peru.
BHP Billiton Vice President Sustainability and Climate Change, Dr Fiona Wild, said the Bond was a “global first” and a further example of the company’s efforts to address climate change and enhance the global response.
Martijn Wilder – head of Baker & McKenzie’s Climate Change and Finance practice, advised BHP Billiton on the Forest Bond’s development – described REDD+ as “critically important” to meeting global climate targets.
“Financing sustainable economic development that has the preservation of forests at its heart, not only ensures a more focused commitment to forest conservation, it also creates different revenue opportunities for local communities, to support these investments,” he said.
“This project highlights BHP Billiton’s commitment to conservation.”