HANOI, February 14, 2023 -- Each year in Vietnam a lack of clean water causes an estimated 9,000 deaths and another 250,000 people are hospitalized according to UNICEF.1 Children are especially vulnerable to parasitic waterborne diseases. Millions more are exposed to dangerous indoor air pollutants from boiling water over an open flame to make it safe. The solutions, including water purifiers, can be remarkably low-tech and inexpensive, yet there are significant financing challenges to manufacture and distribute these devices to the communities that need them.
The positive impact of water purifiers on individuals and communities is hard to overstate. In addition to fighting waterborne disease like cholera, these simple devices that use ceramic filters with a durable casing, have a long list of other development benefits. They also achieve benefits for the whole planet, by replacing the burning of biomass. Each water filter replaces a ton of carbon that otherwise would be in the atmosphere every 5 years, the equivalent of the carbon absorbed by 1.2 acres of forest.2
In recent years, carbon markets have been supporting projects in developing countries like Vietnam to distribute water purifiers and other similar low-cost solutions that deliver significant development benefits. In these projects, an asset also known as a carbon credit, is created after monitoring, reporting and verifying that greenhouse gas emissions have been avoided or reduced. In the case of water purifiers being deployed in Vietnam, carbon credits result from the replacement of the burning of biomass -- less wood is chopped down and burned, and therefore less carbon dioxide is released in the atmosphere.
For all these positive things to happen, projects must first be financed, implemented, and operated -- often for a year or more before the results can be verified and carbon credits issued. Once a project is up and running, often the carbon credits get generated in a predictable pattern. Finding solutions to overcome this timing mismatch, where projects need funding up-front to finance capital and operating expenses to get off the ground are essential. The potential to securitize the flows of future carbon credit sales revenue will help to pool funding from the global community eager to help climate friendly projects get started and to scale.
The newly priced $50 million Emission Reduction-Linked Bond solves the timing mis-match problem by channeling up-front financing from capital market investors looking to support low-carbon development projects, through a tradeable, high-grade investment product. Investors in the bond will earn a return linked to the issuance of carbon credits by a water purifier project in Vietnam. “This outcomes based bond builds on our experience from the Wildlife Conservation Bond, channeling private capital to support the financing of development outcomes, with investors benefiting when projects achieve positive results. In the Emission Reduction-Linked Bond outcomes are measured by the issuance of carbon credits while in the Wildlife Conservation Bond it was the growth in rhino populations”, said Anshula Kant, Managing Director and World Bank Group Chief Financial Officer.
To accomplish these results, instead of making regular coupon payments to investors, an equivalent amount of financing is front-loaded and paid via Citi to finance a specific water purification project which aims to manufacture and distribute 300,000 water purifiers to 8,000 schools and institutions in Vietnam. “Once again, the World Bank Treasury is pleased to bring forward another pioneering transaction. This bond aligns investor returns with project success, while mobilizing private capital for sustainable development,” said Jorge Familiar, Vice President and Treasurer, World Bank.
The purifiers will make clean water available to around two million school children and other beneficiaries while also mitigating greenhouse gas emissions by avoiding the burning of biomass to purify water. This single project has the potential to reduce nearly 6 million tons of carbon dioxide, the equivalent of taking almost two coal fire power plants out of service for a year. The Vietnam water purifier project is not a World Bank project and will be implemented by Sustainability Investment Promotion and Development Joint Stock Company (SIPCO), a private Vietnamese company specializing in the development of climate friendly projects. SIPCO also manufactures the water purifiers in Vietnam. “SIPCO is proud to be associated with this innovative structure. It gives project developers like us access to finance in anticipation of future carbon revenues. That helps us move faster and expand programs that will positively impact thousands of kids across Vietnam,” said Mr. Hoang Anh Dung, Chairman, SIPCO.
BOX: Development Benefits of Water Purification Projects in Vietnam
The Vietnamese Ministry of Education and Training will distribute the water purifiers. They are provided for free to beneficiaries since the Emission Reduction-Linked Bond structure is sufficient to finance the local manufacturing and distribution costs.
The final and perhaps most consequential benefit of the Emission Reduction-Linked Bond structure is its potential to serve as a model for replication to support other carbon credit generating projects. At this moment climate finance needs important new tools to channel funding from investors to projects in developing countries to help them reduce emissions and achieve low-carbon development. The Emission Reduction-Linked Bond, and other initiatives like the World Bank’s Scaling Climate Action by Lowering Emissions (SCALE) initiative, can be important steps towards building effective carbon credit markets. “We are excited to see this innovative bond support access to clean drinking water in Vietnam. We stand in partnership with our country clients to help them achieve their climate goals, including the use of carbon pricing and building capacity to access carbon markets”, said Carolyn Turk, Country Director, World Bank, Vietnam.
Disclaimers:
Net proceeds of the bonds described herein are not committed or earmarked for lending to, or financing of, any particular World Bank projects or programs. Payments on the bonds are not funded by any particular World Bank project or program.
This feature story is not an offer for sale of securities of the International Bank for Reconstruction and Development ("IBRD"), also known in the capital markets as "World Bank". Any offering of World Bank securities will take place solely on the basis of the relevant offering documentation including, but not limited to, the prospectus, term sheet and/or final terms, as applicable, prepared by the World Bank or on behalf of the World Bank, and is subject to restrictions under the laws of several countries. World Bank securities may not be offered or sold except in compliance with all such laws. The World Bank Sustainable Development Bond Framework, the World Bank’s Sustainable Development Bond Impact Report, and the information set forth therein are not a part of, or incorporated by reference into, the offering documentation.
1 https://www.unicef.org/vietnam/stories/world-water-week-2021-meet-our-expert
2 https://www.epa.gov/energy/greenhouse-gas-equivalencies-calculator
