The World Bank has issued an outcome bond in partnership with a social enterprise whereby the proceeds will be directed towards reducing and recycling plastic waste, generating plastic and carbon credits to provide a financial return to investors.

The seven-year $100 million, principal-protected Plastic Waste Reduction-Linked Bond issued by the World Bank will channel capital towards community-led plastic waste collection and recycling efforts in Ghana and Indonesia, with investors receiving a financial return linked to the sale of plastic and carbon credits issued on the Verra registry.

Participating investors include Mackenzie Investments, Skandia, Velliv Pension, T. Rowe Price, and Muzinich & Co. The bond is underwritten by CitiBank.

Two projects developed by social enterprise Plastic Collective are in line to receive financing from the bond – the Searcular collection and recycling project in Java, Indonesia, and the Asase Foundation community-based collection and recycling project in Ghana.

The projects will receive about $14 million in up-front financing to increase capacity at existing facilities, expand to new collection and recycling sites, and install food-grade recycling equipment, a press release said on Thursday.

Bond proceeds are expected to enable additional processing capacity of some 250,000 tonnes of plastic across the two projects over the seven years, Steve Hardman, chairman of Plastic Collective, told Carbon Pulse prior to the release.

The transaction marks the first time that Plastic Collective has held such an agreement with the World Bank, and there is potential for similar bonds to be issued in future, he said.

Plastic Collective aims to address plastic waste in developing countries through setting up community-led collection and recycling projects supported by brands including Coca Cola and TK Maxx through the sale of plastic credits.

PRESSING NEED

The bond meets a pressing need in developing nations for finance to tackle the growing problem of plastic waste, with many countries lacking structured municipal waste collection systems, Hardman explained.

“Grants for plastic projects in developing nations only go so far – once they burn through that money, there really is no financing mechanism available to projects to continue their activities. They aren’t yet profitable and so can’t borrow money or stand on their own two feet.”

“So, we have come up with a way for projects to pay back the finance they receive through environmental impact and revenue from the sale of plastic credits to corporates looking to account for their plastic footprint,” Hardman said.

Plastic Collective has worked with the World Bank and CitiBank over a number of years to develop the process, with investors to receive a financial return linked to the sale of Plastic Waste Collection Credits, Plastic Waste Recycling Credits, and Voluntary Carbon Units (VCUs).

These credits will be issued on the Verra registry under the Verra Plastic Waste Reduction Standard, enabling the managing entities to measure the outcome of each project.

The Verra Plastic Waste Reduction Standard consists of both a collection credit and a recycling credit, with one collection credit equal to 1 tonne of plastic collected that would otherwise have leaked into nature, and one recycling credit equating to 1 tonne of plastic recycled that would have otherwise gone into landfill.

A corporate plastic waste footprint is calculated based on the amount of plastic that leaks into nature and the portion that goes into landfill, rather than the gross amount of plastic a company puts onto the market.

The Far North Queensland Farm Plastics projects in Australia was an early proponent to receive plastic credits under Verra’s plastic standard, while an environmental commodities asset manager in India says the emerging plastic credits market holds great promise for India.

Many companies are turning to plastic credits amid growing pressure to address the global plastic pollution crisis as proponents say they open up a critical funding stream for waste management in the developing world.

However, environmental advocates and experts are concerned that credits justify ongoing plastic production and distract from more aggressive policies to make producers responsible for waste management.

PLENTIFUL PLASTIC

As much as 78 million tonnes of mismanaged plastic waste leaks into the natural environment every year, with a further 318 Mt going unrecycled into landfill and incineration, according to OECD estimates, so the emergence of plastic credits and financing structures such as this aim to tackle the issue head on.

Efforts to tackle the spiralling plastic issue have significantly increased in recent times, spearheaded by the Intergovernmental Negotiating Committee on Plastic Pollution, which convened stakeholders at the end of last year to negotiate a global plastic treaty.

However, the talks in Nairobi last November ended with negotiators failing to achieve the goal of agreeing a draft treaty text for approval next year and observers blaming excessive influence from fossil fuel and petrochemicals lobbyists.

Negotiators had previously agreed to aim for a final deal before the end of 2024, but with only two more sessions to go, time is running out.

Observers blamed the failure in Nairobi on two factors – influence from industry lobbyists of which there were more than 140 at the talks, and a lack of ambition among many developed-country members of the so-called ‘High-ambition Coalition’.

SOCIAL WELFARE

In addition to tackling the environmental impact of plastic waste, a core objective of the projects funded by the World Bank bond is to improve the livelihoods of informal waste collectors, of whom there are about 20 million people globally, around 80% of which are women.

“As part of this bond, we are implementing a new social welfare programme where the project is certified to address the welfare of waste pickers, including implementing health and medical care, supporting the schooling of workers’ children, ensuring working conditions are of appropriate standards, and that they’re paid above market wages,” Hardman explained.

“The programme requires auditors to come in and check this and also have project managers who are in the field constantly with the workers to monitor and address any problems that are brought up,” he added.

“Outcome bonds like the Plastic Waste Reduction-Linked Bond align incentives so that investors benefit financially when positive development outcomes are achieved. They create a win-win with the local communities and ecosystems that benefit from less pollution, and we will continue issuing them,” said Anshula Kant, managing director and World Bank Group chief financial officer.

BOND DETAILS

The bond is 100% principle protected with the $100 mln of proceeds used to support World Bank sustainable development activities globally, the press release stated.

Bond investors will “forego a portion of ordinary coupon payments, with the equivalent amounts instead being provided, through a hedge transaction with Citi, to support the financing of the projects selected by Plastic Collective UK, who manage the projects’ plastic and carbon credit programmes. In return, the investors will receive annual coupons composed of a fixed amount plus payments linked to the sale of a portion of the plastic and carbon credits produced by the projects”, it said.

If the credits perform as expected, bond investors should expect to financially benefit compared to regular World Bank bonds of similar maturity.

The fixed interest amount is 1.75%, plus a VCU-linked interest amount and plastic credits linked interest amount.

The plastic credits linked interest amount is linked to the number of plastic credits issued from the projects, subject to a cumulative ceiling of $19,468.25 per specified denomination, while the VCU-linked interest amount is linked to the number of VCUs issued from the projects, subject to a cumulative ceiling of $532.99 per specified denomination.

The bond settlement date is Jan. 31, 2024 and the maturity date is Jan. 31, 2031.

The bond is listed on the Luxembourg Stock Exchange.

By Bryony Collins – bryony@carbon-pulse.com