(Bloomberg) — A new type of bond aims to save the Amazon rainforest by linking investors’ returns to the amount of carbon removed from the atmosphere.

The World Bank this week sold a $225 million, nine-year bond designed to help raise money for reforestation in the Amazon. Unlike previous bonds, buyers’ returns will be tied to the climate impact of the new trees, rather than the emissions avoided by curbing deforestation.

Investors will receive a fixed guaranteed coupon of approximately 1.745 percent per annum, which is lower than ordinary World Bank bonds with a similar maturity. The foregone coupons, worth $36 million, will be used to finance the reforestation activities of Brazilian startup Mombak Gestora de Recursos Ltda. HSBC Holdings Plc advised on the deal.

According to the World Bank, Mombak will use these funds to acquire or partner with landowners in the Amazon to reforest the land with native tree species. Carbon credits generated by the projects, calculated based on the amount of carbon removed by the trees planted, will then be sold to Microsoft Corp., which has a purchase agreement with Mombak.

Bondholders will receive part of the proceeds from this sale in the form of an additional variable coupon linked to the number of loans sold. They can expect a total annual return of up to 4.362 percent, the supranational institution said.

“What we’ve been trying to do here is find a way to get blue-chip bond investors to finance these kinds of projects,” said Michael Bennett, head of derivatives and structured finance at the World Bank’s Treasury.

The bonds have full capital protection and are rated AAA in terms of their face value, according to Bennett, and a minimum coupon is guaranteed.

The deal is the latest in a series of unusual outcome-based bonds from the World Bank and its largest to date, raising $150 million in 2022, some of which will go toward black rhino conservation.

This week’s sale follows investor demand for products that protect the Amazon. Brazil, which is home to 60 percent of the Amazon rainforest, issued its first sustainable bond last year, with proceeds earmarked for environmentally and socially beneficial projects. Prominent investor groups have urged the country to go a step further and issue a bond linked to rainforest protection.

ESG shift

By financing carbon removal, the bond capitalizes on a shift in voluntary carbon markets where buyers are willing to pay more for projects that actually remove carbon. Credits generated by carbon removal, such as those from reforestation, are more expensive. But the alternative – credits tied to ending deforestation – are coming under increasing scrutiny for their role in greenwashing.

“As the market matures and buyers do their due diligence, they are placing more and more emphasis on quality because they realize that sometimes the carbon they are buying is not what they expected,” said Gabriel Silva, co-founder and CFO of Mombak. “Some companies, like Microsoft, have even moved away from emissions reduction credits and are focusing only on carbon removal. And that’s a trend I’m seeing more and more.”

According to the World Bank, the bond was oversubscribed, which shows that larger transactions of a similar nature are possible.

“There are investors who want to see even larger amounts because there are formal or informal minimum amounts,” Bennett said. “We are looking at other carbon credit transactions in the area of ​​reforestation, agroforestry and other carbon sequestration technologies.”

Investors included T Rowe Price Group Inc., Nuveen Asset Management and Rathbones Investment Management Ltd., according to the statement.

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