By Chris Lang
Yesterday, the World Bank’s private sector arm, the International Financial Corporation launched a US$152 million bond aimed at supporting REDD and carbon trading. The deal demonstrates just about everything that’s wrong with REDD.
In a press release, Jingdong Hua, IFC Vice President and Treasurer, says,
“Halting deforestation is essential to meet the global community’s climate goals. To do that, we need to mobilize $75 billion to $300 billion in the next decade. Much of this needs to come from the private sector. IFC’s Forests Bond demonstrates the power of innovative capital-market mechanisms to unlock private sector funds for forest protection.”
IFC’s five-year bond will be listed on the London Stock Exchange. It has been sold to major global institutional investors, such as CalSTRS, Treehouse Investments LLC, TIAA-CREF, and QBE.
The profits will support IFC’s “private sector lending in emerging markets”. That sounds reasonable. Until we look at what the IFC’s lending entails. A few years ago, IFC made a US$7 million equity investment in Agri-Vie Agribusiness Fund. One of the companies in Agri-Vie’s portfolio was a UK-based firm called New Forests Company.
Cash or carbon credits?
Investors in IFC’s Bond were offered either cash or carbon credits. Investors taking the carbon credit option could retire the credits to “offset” their corporate greenhouse gas emissions, or sell them. Investors will receive voluntary carbon credits at a fixed price of US$5.00.
It’s probably worth pointing out (since the IFC doesn’t mention this in its press release) that clean development mechanism carbon credits are currently selling on the EU Emissions Trading System for €0.38. And there currently is no secondary market for voluntary carbon credits.
So what happens if investors want money, rather than carbon credits? Well, IFC developed its Forest Bond together with BHP Billiton, the world’s largest mining company.