World Bank credit guarantee boosts forest conservation

From the newsletter

A World Bank agency has provided a $180 million guarantee to support forest conservation via a clean cooking initiative. It aims to strengthen and expand carbon credit and financing efforts by Koko Networks, a cookstove provider, in Kenya and Rwanda, promoting sustainability and environmental protection.

• Koko Networks has successfully supplied bioethanol cooking fuel to over 1.3 million homes in Kenya and Rwanda by utilising a network of 3,000 fuel ATMs located in corner shops within low-income neighbourhoods.

• In Africa, more than 850 million people rely on firewood and charcoal for cooking, leading to harmful pollution and increasing deforestation.

More details

• The World Bank provided the guarantee through the Multilateral Investment Guarantee Agency (MIGA). Koko focuses on combating deforestation in Africa, driven by the widespread use of charcoal for cooking. This initiative promotes a clean alternative to charcoal. With 923 million people on the continent lacking access to clean cooking methods, the charcoal industry is responsible for significant annual forest loss. For instance, the Democratic Republic of the Congo (DRC) has lost nearly 5 million hectares of tropical primary forests over the past 20 years and continues to face the threat of deforestation.

• Koko's clean cooking initiative has achieved an estimated annual reduction of 6 million tonnes of CO2-equivalent emissions. Its model leverages carbon credits generated from household fuel switching as a non-governmental energy subsidy. The proceeds from carbon credit sales are shared with local communities by providing cookstoves and fuel at below-market prices. The MIGA guarantee will safeguard Koko's carbon credits against potential risks, including the failure of host governments to uphold legal commitments.

• Koko's CEO, Greg Murray, stated: “We operate in the highly regulated energy and compliance carbon sectors and are therefore exposed to significant political risk. MIGA's guarantees have enabled the construction of risk-exposed energy infrastructure in emerging markets for over 40 years, and we are proud to be the first MIGA policy addressing the unique political risks associated with the Paris Agreement carbon markets."

• The rhino bond issued in 2022 is an example of how credit guarantees can be utilised in conservation in Africa. Issued by the World Bank in March 2022, the bond aimed to protect black rhinos in South Africa’s Addo Elephant National Park and the Great Fish River Nature Reserve, raising $150 million at issuance.

• At the end of the Wildlife Conservation Bond's five-year term, investors will receive their principal and, depending on black rhino population growth, a variable payout funded by the World Bank. If growth exceeds 4%, investors receive a success payment. If growth is flat or negative, only the principal is returned. Investors forgo traditional bond coupons, which are instead used to finance conservation efforts in the two South African parks.

• In Africa, over 850 million people rely on firewood and charcoal for cooking, leading to harmful pollution and increased deforestation. By 2030, an estimated 2.2 billion people worldwide, primarily in Africa, will still depend on inefficient cooking methods, exacerbating climate change and resulting in 3.7 million annual deaths from indoor air pollution.

Our take

• Conservation guarantees are designed to address the unique risks and financial structures of conservation projects, which often exhibit high sensitivity to currency fluctuations, have long lifetimes, and require significant capital investment.

• By explicitly targeting these characteristics, these guarantees are effective in mobilising conservation investment in African markets.

• While guarantees can mitigate risks for lenders, debt providers, and equity investors in conservation, a review of 54 tracked guarantees in 2024 revealed that they exclusively covered debt. This leaves equity investors without adequate protection against the higher risks they encounter.