Indonesia Coral An Innovative Bond Instrument Ocean Financing T he proposed Indonesia Coral Bond is the World Bank’s first outcome-based financing instrument that intends to positively impact ocean biodiversity and over 5 million possibly the GEF. This represents a novel approach in conser- vation financing that passes project risks to capital market investors and allows donors to pay for conservation outcomes. hectares of marine protected areas (MPAs). The proposed The project activities will be implemented by the Indonesian instrument will be issued by the World Bank in collaboration Environment Fund (IEF), in collaboration with the Ministry of with the Government of Indonesia, the International Union National Development Planning (BAPPENAS) and the Ministry for Conservation of Nature (IUCN), the Global Environment for Marine Affairs and Fisheries (MMAF). Facility (GEF) and BNP Paribas. Building on the World Bank’s experience with innovative fi- Under the outcome bond structure, investors agree to nancing instruments such as the recent Plastic Waste forego bond coupon payments, which will instead Reduction-Linked Bond1 and the Wildlife Conserva- be used to finance conservation initiatives tion Bond (or “Rhino Bond”),2 the Indonesia Coral in four MPAs that host some of the most Bond will generate much needed resources to biodiverse coral reefs in the world. Proj- improve the management and biodiversity ect success will be measured according outcomes in four priority MPAs in Indonesia. to pre-identified coral reef health and The Coral Bond leverages existing invest- management effectiveness targets. If the ments in marine conservation in Indonesia, project is successful, in addition to princi- including a USD 200 million loan extended by pal redemption of the bond, investors will the World Bank to the Republic of Indonesia also receive a success payment at maturity, (the Oceans for Prosperity project) in support paid by the World Bank with funds provided by of global commitment to protect 30 percent of a performance-based grant from BNP Paribas and land and ocean by 20303. 1 World Bank (2024). “World Bank’s New Outcome Bond Helps Communities Remove 2 World Bank (2022). “Wildlife Conservation Bond”. Available at: and Recycle Plastic Waste”. Available at: https://www.worldbank.org/en/news/press- https://treasury.worldbank.org/en/about/unit/treasury/ibrd/wildlife-conservation-bond release/2024/01/24/world-bank-s-new-outcome-bond-helps-communities-remove-and- 3 Kunming-Montreal Global Biodiversity Framework recycle-plastic-waste Photography: Elodie Van Lierde Disclaimer: THE FOLLOWING IS A SUMMARY OF A PROJECT WHICH HAS BEEN APPROVED IN CONCEPT AND IS SUBJECT TO COMPLETION AND AMENDMENT. IT IS NOT AN OFFER OR INVITATION TO SELL THE NOTES OR A SOLICITATION OF AN OFFER TO BUY THE NOTES, NOR DOES IT CONSTITUTE ANY FORM OF ADVICE. THIS SUMMARY IS SEPARATE FROM, AND SHOULD NOT BE READ IN COMBINATION WITH, ANY OFFER OR SALE OF THE NOTES, WHICH WILL BE MADE IN COMPLIANCE WITH APPLICABLE LAWS AND UNDER ENTIRELY SEPARATE LEGAL DOCUMENTATION AND OFFERING MATERIALS AT THE TIME OF OFFER. POTENTIAL INVESTORS SHOULD NOT SUBSCRIBE FOR ANY NOTES REFERRED TO IN THIS SUMMARY EXCEPT ON THE BASIS OF INFORMATION CONTAINED IN SUCH ENTIRELY SEPARATE LEGAL DOCU- MENTATION AND OFFERING MATERIALS AT THE TIME OF OFFER. THIS SUMMARY IS VERY HIGH LEVEL FOR SIMPLICITY AND LEAVES OUT MATERIAL INFORMATION AND DOES NOT INLCUDE ANY LEGAL DOCUMENTATION THAT WOULD GOVERN THE NOTES. 01 PROPOSED INDONESIA CORAL BOND Project Context: The Importance of Objective of the Coral Bond Project Marine Protected Areas in Indonesia T ndonesia is one of the most biodiverse marine nations in the world, hosting 16 percent of the world’s coral T he foregone coupons from the Coral Bond will be utilized to secure measurable outcomes in the four above-mentioned MPAs. The provisional key targeted outcomes, against which reefs, and 17 percent of the world’s blue carbon reservoir. In the amount of the conservation success payment will be mea- Indonesia, one-third of coral reefs are in poor condition. Yet, sured, are: coral reefs are vital for Indonesia’s economy, providing a - select MPAs achieve independently verified conservation direct economic contribution from fisheries and tourism es- outcomes in line with IUCN Green List of Protected and timated at USD 3.3 billion annually4. Additional co-benefits Conserved Areas; and include improved nutrition,5 and climate change adaptation - live coral cover and coral reef fish biomass in select MPAs and mitigation. are maintained or increased. The choice of the IUCN Green List as one of the provisional impact metrics offers a scalable, verified results-oriented mod- el for MPA financing. The IUCN Green List is a sustainability standard that recognizes effectively managed and governed terrestrial and marine protected and conserved areas that are achieving their conservation outcomes. It provides an assured assessment of performance and expert validation of progress to participating protected and conserved areas, implemented according to the International Social and Environmental Ac- creditation and Labelling Alliance (ISEAL) codes and principles. Two provisional biophysical impact metrics, coral reef fish bio- The proposed project builds on the Government of Indonesia’s mass and live coral cover, will also be tracked to demonstrate efforts to improve the effectiveness of MPAs. Four priority the impact management measures put in place on coral reef MPAs in Raja Ampat, Savu Sea, and Alor have been selected, health. These have been selected due to their relevance to the totaling over 5 million hectares within the globally signifi- coral reef environment, their utility to decision makers and the cant Coral Triangle ecoregion and encompassing a significant scientific evidence base for using these metrics to understand proportion of the Birds Head and the Sunda Banda Seascapes. coral reef health, as they are recommended by the Internation- The Birds Head Seascape contains the world’s greatest marine al Coral Reef Initiative, the Global Fund for Coral Reefs, and the biodiversity with 1,600 species of reef fish and over 550 Global Coral Reef Monitoring Network. species of corals recorded by scientists. The Sunda Banda Seascape is a priority conservation region, harboring over three-quarters of known coral species and forming an im- Conclusion portant cetacean migration corridor. Coral reefs are a priority conservation target for all four priority MPAs.6 4 Bartelet et al. (2024). “Estimating and comparing the direct economic contributions of reef fisheries and tourism in the Asia-Pacific.” T he proposed project will contribute to closing the significant gap in financing Sustainable Development Goal 14 (Life Below Water), and it represents a unique opportunity to unlock 5 Selig, E. R. et al. (2019). “Mapping Global Human Dependence on Marine Ecosystems.” 6 MMAF (2020). “Profil Kawasan Konservasi.” private finance for marine conservation. Photography: Elodie Van Lierde 2