Colombia has taken a significant step towards biodiversity conservation by issuing its first biodiversity bond with IFC and BBVA Colombia. On July 12, 2024, Colombia places biodiversity bond issued by Banco Bilbao Vizcaya Argentaria Colombia S.A. (BBVA) Colombia with the International Finance Corporation (IFC) subscribing to Colombia’s first biodiversity bond, raising $15 million for environmental projects with a proposed subscription of upto $35 million. The bond is expected to total $70 million over three years and will be used to finance projects that support biodiversity in Colombia, including: reforestation, restoring natural forests on degraded land, mangrove conservation or restoration, climate-smart agriculture, and wildlife habitat restoration.
This innovative financial instrument aims to mobilize capital for projects that protect and enhance Colombia’s rich biodiversity while promoting sustainable economic development. This blog explores the financial details, objectives, and expected impact of BBVA Colombia’s biodiversity bond.
Understanding Biodiversity Bonds as Colombia Places Biodiversity Bond
Biodiversity bonds are debt instruments specifically designed to raise capital for projects that conserve and restore biodiversity. They align with sustainable finance principles, emphasizing environmental protection, social inclusion, and economic viability. The issuance of biodiversity bonds represents a crucial advancement in leveraging financial markets to address biodiversity loss and support sustainable development.
Financial Structure of BBVA Colombia’s Biodiversity Bond
Colombia is considered one of the world’s “megadiverse” countries, with nearly 10% of the planet’s biodiversity. It’s home to 14% of the world’s known plant species, one third of all bird species, and around 1,500 species of amphibians, which is 14% of the world’s total. However, climate change poses a major threat to Colombia’s biodiversity, as well as to its communities. The World Bank estimates that climate change could cause up to 10 million refugees in Colombia by 2050.
BBVA in Colombia is the issuing bank and IFC acts as structurer and investor. The operation includes advice to establish eligibility criteria and reporting indicators for activities that help protect, maintain, or improve biodiversity and ecosystem services, as well as promote optimal sustainable management of natural resources. Additionally, IFC will build technical capabilities within BBVA and raise awareness among its clients about financing opportunities for biodiversity in Colombia.
The bond issued in the international capital market will be for up to US$70 million, with a three-years tenor. IDB Invest will act as a co-investor with a subscription for a total amount of up to US$35 million and the International Finance Corporation (“IFC”) will also participate as a co-investor, with a total amount of up to US$35 million. The financing aims to expand the portfolio of green projects related to biodiversity in Colombia.
Allocation of Proceeds
The proceeds from BBVA Colombia’s biodiversity bond will be directed towards projects that meet stringent criteria for biodiversity conservation and sustainable development. The allocation includes:
- Protected Areas: 50% of the proceeds will fund the creation, expansion, and maintenance of protected areas to preserve critical habitats and species.
- Sustainable Agriculture: 25% of the proceeds will be invested in sustainable agricultural practices that enhance soil health, increase biodiversity, and improve farmers’ livelihoods.
- Community Initiatives: 15% of the proceeds will support community-led projects that promote biodiversity conservation and sustainable resource management.
- Research and Development: 10% of the proceeds will fund research and development projects aimed at improving biodiversity conservation techniques and sustainable land management practices.
Case Study: Amazon Rainforest
The biodiversity bond could fund conservation in the Amazon Rainforest, a region known for its unparalleled biodiversity. The project funding could include:
- Protected Areas: Establishing new protected areas to safeguard critical habitats and species in the Amazon.
- Sustainable Agriculture: Supporting sustainable farming practices that protect soil health, promote agroforestry, and reduce deforestation.
- Community Empowerment: Assisting local communities in developing eco-tourism and sustainable resource management projects.
- Research and Development: Funding research aimed at understanding the Amazon’s unique ecosystems and developing innovative conservation strategies.
The Amazon project exemplifies how the biodiversity bond could create a synergy between conservation and economic development, ensuring the long-term preservation of this vital ecosystem while benefiting local communities.
Conclusion
By mobilizing private capital for biodiversity conservation and sustainable development, this innovative green biodiversity bond offers a scalable model for protecting our planet’s rich biodiversity and promoting economic growth.
As we face the twin challenges of biodiversity loss and climate change, innovative solutions like biodiversity bonds are essential for creating a world where economic development and environmental stewardship go hand in hand. The successful implementation of this bond sets a precedent for future sustainable finance initiatives, inspiring more investments in the health and resilience of our planet’s invaluable ecosystems.
Newswire:
BBVA Colombia and IFC issue the world’s first biodiversity bond in the financial sector
BBVA Colombia and IFC announce the financial sector’s first biodiversity bond issue