The World Bank has issued a seven-year, $100 million Plastic Waste Reduction-Linked Bond expected to provide investors with financial returns through plastic and carbon credits generated in waste reduction and recycling projects in vulnerable communities in Ghana and Indonesia.
Approximately 70% of the nearly 350 million tons of plastics produced across the world are thought to end up in managed landfills or be incinerated; the remainder is recycled (10%) or enters the natural environment (20%). Furthermore, the OECD suggests that almost 1.7 million tons of this plastic leaks into the world’s oceans.
Poor and vulnerable communities are the hardest hit by such pollution, The World Bank explains. This is because these citizens often live on marginalized land, close to plastic burning sites, where blocked waterways cause floods in the local area.
In response, the principal-protected Plastic Waste Reduction-Linked Bond is set to mobilize private capital and help finance projects that aim to benefit the climate and development – their outcomes measured by the generation of Plastic Waste Collection Credits, Plastic Waste Recycling Credits, and Verified Carbon Units issued on the Verra Registry.
Each plastic credit represents one ton of plastic that has been collected or recycled. Historically, the funds from plastic credit sales aren’t available to businesses until the desired outcome is achieved, which can sometimes take years and cause timing mismatches.
The Plastic Waste Reduction-Linked Bond seeks to channel up-front financing from capital market investors through a tradeable, high-grade investment product and help businesses support waste collection and recycling initiatives.
Through a hedge transaction with Citi, investors in the bond will earn a return that is, in part, linked to the provision of plastic and carbon credits from the two recycling projects – selected by Plastic Collective UK, which manages the projects’ plastic and carbon credit programmes.
An equivalent amount to the portion of coupons paid to investors by the World Bank is front-loaded and paid to Plastic Collective by Citi in two instalments. From there, Plastic Collective will channel the financing to the projects. Investors will then receive annual coupons in exchange, constituting a fixed amount as well as payments linked to the sale of a portion of the plastic and carbon credits produced by the projects.
If the projects and Plastic Collective UK’s monetization of plastic and carbon credits go to plan, the bond is expected to provide investors with a potential financial benefit in comparison to regular World Bank bonds of similar maturity. The World Bank hopes to innovate a new way of financing plastic collection and recycling operations with the use of credits.
Approximately $14 million in up-front financing is reportedly being provided by investors – currently including Velliv Pension, Skandia, Mackenzie Investments, T. Rowe Price, and Muzinich & Co. – in an effort to achieve higher capacity at existing facilities, build new collection and recycling sites, and install food-grade recycling equipment.
Meanwhile, the plastic collection and recycling projects in Ghana and Indonesia aspire to improve the livelihoods of informal waste collectors. Around 20 million people collect plastic waste around the world, with 80% of them said to be women.
Funding allocated to the community-based Ghanian project will support the foundation of new waste collection and recycling sites in Accra. In Indonesia, the money will go towards Surabaya-based efforts to cut down on ‘ocean-bound’ plastics.
Both are anticipated to cut down on plastic and local pollution; improve air quality and, subsequently, human health; and create direct and indirect employment for over one thousand individuals in marginalized communities. Staff and informal waste collectors will be provided with full personal protective equipment and health and safety training.
Between the two projects, approximately 230,000 tons of plastic waste is expected to be collected over the next decade – 180,000 tons of which are set to be recycled into reusable bags, electronics, luggage, and more.
Each project has been certified under the Verra Plastic Waste Reduction Standard, and they have set their sights on both the Verified Carbon Standard and the new Zero Plastic Oceans Plus Social Welfare Certification.
“Plastic pollution wreaks havoc on developing countries by degrading ecosystems on which the wealth of the poor depends, further eroding the possibility for people to get out of poverty,” explained Valerie Hickey, global director, Environment, Natural Resources and Blue Economy at World Bank. “It’s also entering the blue food chain and endangering fisheries, and the people who depend on fish for their nutrition.
“This innovative Plastic Waste Reduction-Linked Bond channels funds to finance to support the growth of small- and medium-sized enterprises that are on the frontlines of the plastic pollution challenge and poised to make a positive contribution for the environment, human health, and jobs in their communities.”
“Given the huge needs for development, channelling private capital to support development challenges has been a fundamental part of our work,” said Anshula Kant, managing director and chief financial officer at World Bank Group. “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.”
Plastic Collective CEO Steve Hardman continued: “We’re both proud and excited to see this funding effort come to fruition. For almost a decade, Plastic Collective has been at the forefront of developing innovative and sustainable ways to fund plastic collection and recycling projects in the most disadvantaged communities around the world and to help provide finance to the normally unfinanceable.
“The funding will enable the expansion of facilities and production lines, plus the implementation of social welfare programs to enhance and protect the livelihood of informal waste pickers who are the foundation of these projects. We hope that this new approach to financing environmental and social impact activities benefits many more in the future.”
“I am incredibly proud of the collaboration between the World Bank, Plastic Collective, and Citi in launching this fourth Outcome Bond,” said Philip Brown, global head of Sustainable Debt Capital Markets at Citi. “Our collective effort innovatively plans to use Verra-registered plastic credits to support two projects to reduce plastic pollution – a huge global challenge with particularly devastating impacts on emerging markets.
“This Outcome Bond allows fixed income investors to support development projects that would otherwise struggle to secure financing. We’re also responding to investor appetite for transactions with direct and quantifiable development impact.
“We are hopeful that these transactions will inspire others - and drive further positive change.”
The news comes after Prevented Ocean Plastic shared its plans to open 25 high-volume collection centres across various global regions by 2025, with which it will gather and recycle ‘ocean-bound’ plastic waste into its ‘fully traceable’ plastic material. These are set to be located on coastlines that are said to have lacked the necessary recycling infrastructure to handle their plastic waste in the past, including places in Southeast Asia, South America, Sub-Saharan Africa, and the Mediterranean.
Borealis and Ecopost have also joined forces to scale up plastic waste collection and recycling in Kenya – formalizing collecting processes, expanding recycling capacity, and training and recruiting collectors.
On a wider scale, the European Commission has banned plastic waste shipments from the EU to non-OECD countries in its bid to take greater responsibility for EU exports, lift the environmental burden on third countries, and utilize waste as a resource in line with the Green Deal.
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