31 October 2016
As part of its commitment to addressing climate change, BHP Billiton is supporting a new innovative bond designed to reduce deforestation and stimulate investment in low-carbon development.
The Forests Bond, issued by IFC, a member of the World Bank Group, raised US$152 million from institutional investors. The Bond is listed on the London Stock Exchange.
The Forests Bond provides a choice for investors to receive coupons in the form of carbon credits generated from avoided deforestation and issued under the Verified Carbon Standard, instead of cash coupons.
The Bond will support a project in Kenya run under the United Nations’ climate change mitigation mechanism REDD.
BHP Billiton is providing a price support mechanism of US$12 million that ensures that the project can sell a pre-defined minimum quantity of carbon credits every year until the Bond matures, whether or not investors in the Bond elect to receive carbon credit coupons. REDD projects must usually sell a certain number of carbon credits each year to be sustainable.
BHP Billiton Vice President Sustainability and Climate Change, Dr Fiona Wild, said the Bond was a “global first” and provided emissions reduction opportunities as well as environmental and social benefits.
“Our support of the Forests Bond is another example of the action we are taking to address climate change and work in partnership to enhance the global response,” Dr Wild said.
“Greenhouse gas emissions will remain part of the resources sector, even with the prioritisation of greenhouse gas emissions reductions and energy efficiency at BHP Billiton and industry-wide. Whilst low-emissions technology is becoming more effective and commercially viable, it is important to identify robust and cost-effective offsets to help meet future reduction commitments.
“The Forests Bond will direct investment for the benefit of the climate, forests and communities and creates a financial incentive for preventing deforestation and investing in low-carbon development.”
Dr Wild said deforestation and forest degradation were responsible for up to 20 per cent of global greenhouse gas emissions and the most significant source of emissions in many developing countries.
“Our support for the Bond is part of our commitment to scale-up private sector investment in REDD+, stimulate demand for REDD+ credits and demonstrate the value of reducing deforestation as one of the most cost-effective climate change solutions.”
In addition to the Bond, BHP Billiton has helped develop a Knowledge Sharing Platform, in partnership with Conservation International and Baker & McKenzie, to encourage investment in REDD+, using the Forests Bond as an example.
“The platform aims to build a global community of practice among project developers, governments, donors and the private sector to explore how to overcome key market, governance and financial bottlenecks to replicate investment products like the Forests Bond.”
Key points on the Forests Bond:
- The Forests Bond will support a project in East Kenya, the Kasigau Corridor REDD Project. The project, implemented by Wildlife Works Carbon LLC, aims to achieve emission reductions through both forest protection and community development, which supports alternative livelihoods in the project area.
- REDD+, an extension of REDD, stands for reducing emissions from deforestation and forest degradation in developing countries, and the role of conservation, sustainable management of forests, and enhancement of forest carbon stocks in developing countries.
- It is an international mechanism established under the UN Framework Convention on Climate Change. It creates a financial value for the carbon stored in forests by offering incentives for developing countries to reduce emissions by conserving forested lands and investing in low-carbon paths to sustainable development.
- To pay investors a carbon credit coupon under the Forests Bond, IFC will buy carbon credits from the Kasigau Corridor REDD Project. Investors electing to receive the carbon credit coupon can retire the credits to offset corporate greenhouse gas emissions, or sell them on the carbon market.