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The world's first forests bond comes to market


​Allen & Overy said today that International Finance Corporation (IFC)’s new USD152 million forests bond, a first-of-its-kind fixed income product linked to carbon credits, underlines the potential role that bonds can play in financial innovation with environmental preservation at its core.

The bond pays an annual fixed cash coupon, but also includes an option for bondholders to receive all or part of their annual coupon in the form of carbon credits by the delivery of eligible verified carbon units (VCUs). VCUs represent a right to claim the achievement of a verified reduction or removal of one tonne of carbon dioxide equivalent from the atmosphere and are linked to Reducing Emissions from Deforestation and Forest Degradation (REDD) projects. VCUs are carbon credits issued in the voluntary carbon market. Bondholders that elect to receive VCUs may choose to retire the VCUs to offset their own greenhouse gas emissions or sell the VCUs in the market.

The bond is intended to facilitate private sector investment in the REDD market by providing capital markets access to carbon credits in a manner that can be replicated by other issuers.

Through its commitment to purchase VCUs, IFC will support a REDD project in south-eastern Kenya which aims to achieve emission reductions through a combination of forest protection and community development activities which support alternative livelihoods in the project area. The proceeds of the bond will be used by IFC for its general operations and are not restricted to the purchase of VCUs or to finance the project.

A&O advised the international banks acting as placement agents on the transaction.

“This is a brand new capital markets product, and has the potential to effect significant environmental change,” said London capital markets partner Matthew Hartley. Peter Crossan, capital markets senior associate, added: “We hope to see other issuers taking a similar route to IFC and private capital being unlocked to further an important cause.”

The wider A&O team included partner Diana Billik in Paris who provided US securities and New York law advice and London corporate partner Matthew Townsend and associate Tom d’Ardenne who provided specialist environmental support. Additional support was provided by partner John Hwang, senior counsel Craig Cohen and associates Dustin Plotnick and Derek Poon in New York.

For further information, please contact Rebecca Hooper,, on +44 (0)20 3088 2152.




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