The Brazilian government should issue an innovative sustainability-linked bond to curb deforestation in the Amazon rainforest, according to researchers at the World Bank.
So-called SLBs — which mean issuers pay higher interest if they fail to meet sustainability goals — lend themselves to transformational projects such as curbing deforestation, the paper said. In Brazil’s case, the bond should be designed so the government isn’t rewarded or penalized for factors outside its control that impact conservation efforts, such as weather or global commodity prices.
“The financial incentives in the SLB structure assure that issuers have ‘skin-in-the-game’ as achieving the sustainability performance target is in their financial interest,” said researchers Dieter Wang, Bryan Gurhy, Marek Hanusch and Philipp Kollenda. Sustainability-linked bonds have mushroomed to see over $200 billion of sales in recent years, though governments have been slower than companies to adopt the format. Chile was the first last year, followed by Uruguay, which used a goal to extend the country’s forest area to 2012 levels by 2025.
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