This report, The Potential Role of Enhanced Bond Structures in Forest Climate Finance, develops innovative bond structures that respond to challenges currently limiting the financing of forest-based Nationally Determined Contribution (NDC) activities, with the intention to catalyze significant increases in financing flows. The report sets out a detailed shortlist of three potential enhanced bond structures, which have the potential to catalyze funding across the gamut of forest-based NDC activities. The focus of the report is on bond structures that blend donor-funded performance-based payments (PBP) alongside some upfront grant funding to improve the financial performance of the use of proceeds for issuers, and hence enable larger-scale financing from capital markets.
The report recommends three enhanced bond structures as offering potentially significant improvements on existing financing instruments. In particular, such enhanced bond structures seek to use PBP for future mitigation performance (as a form of climate finance) to attract upfront private capital toward forest-based NDC activities at a much greater scale than might be achieved through currently available financing instruments. These instruments would offer financing solutions to all key actors – governments, public banks, and corporates – and are also potentially implementable in the near term.