The World Bank has teamed up with Amazon on a bond whose proceeds will go toward rehabilitating ecosystems in South Africa’s Eastern Cape Province.

The $120-million 14-year bond, which was sold to large institutional investors, is designed so that returns are pegged to the number of carbon credits produced by restoring land depleted from centuries of overgrazing. Amazon has agreed to buy a “large share” of the credits generated through the project, the World Bank said in a statement on Thursday.

In addition to the payment linked to carbon credits the bond was priced at a 2.41% interest rate, the bank said.

“The investors will expect to obtain a total return on the bond that will be higher than the yield of a typical World Bank bond,” Michael Bennett, head of market solutions and structured finance in the Treasury department of the Washington-based lender, said in an interview.

The deal marks the latest in a series of so-called outcome-based bonds sold by the World Bank, as it looks for ways to bring private investors into projects targeting biodiversity, sustainability and development needs. Proceeds of the South Africa bond will go toward restoring thickets of Spekboom, a plant that sequesters carbon and helps soil retain water. Spekboom, which has been decimated by South Africa’s goats, means “bacon tree” in Afrikaans, a reference to its plump, succulent leaves.

Including the Spekboom bond, the World Bank has so far raised $945 million through outcome-based bonds, where returns have been tied to activities targeting everything from raising the Black rhino population, to reforestation in the Amazon as well as the reduction of plastic waste in Ghana and Indonesia.

The South Africa bond will pay an annual coupon comprised of an interest rate and an additional payment that will depend on income generated from the sale of carbon credits to Amazon, as well as the overall success of the project. A carbon credit represents a ton of climate warming carbon dioxide or its equivalent removed or prevented from reaching the atmosphere. Companies like Amazon buy them to offset their own emissions.

BNP Paribas SA was the lead manager and bookrunner for the transaction. The project has been registered on the Verra carbon registry.

The World Bank project is operated by Imperative, a company that’s working to restore the Albany thicket, which is a 1.7-million-hectare (4.2 million acre) expanse of succulent shrubs including Spekboom of which more than 80% has been degraded by overgrazing.

“It’s a very efficient plant for water retention and from a carbon sequestration perspective,” Bennett said. “It can produce a relatively high level of carbon sequestration for the cost of putting it into the ground.”

FASHIONABLE SHRUBS

In recent years, Spekboom shrubs have been marketed in South Africa as garden plants prized for their hardiness and carbon-absorbing qualities. In their natural environment they reduce soil erosion and provide a canopy for other species to grow.

The first phase of the World Bank project covers 10 000 ha of land, with the bond intended to help finance a 50 000 ha expansion. While the portions of land to be used will be fenced off to keep goats out, the barrier will be low enough to allow antelopes indigenous to the area to jump over them and graze.

“The general idea of outcome bonds is to get institutional investors taking risk on projects that — let’s say — they wouldn’t take risk on directly,” Bennett said. “We’ve hoped other people would follow because we think it is a valuable way to fund projects and a valuable use of the capital market. We know there are some other issuers working on transactions.”

Earlier this month, Johannesburg-based FirstRand Ltd. sold a R2.5-billion bond that rewards investors on the rate of removal of invasive vegetation in the water catchment area supplying Cape Town. The invasive plants suck up excessive amounts of water.