Uruguay’s new financial instrument to combat deforestation references Planet Tracker’s recommendations

Planet Tracker’s innovative report A Deforestation Linked Sovereign Bond recommended a Deforestation-Linked Sovereign Bond (DLSB) to help countries with valuable state-owned forests to fund their transition to a sustainable economy by linking coupon payments to success in reducing deforestation as part of the solution. The report promoted awareness among policymakers and the media of Deforestation-Linked Sovereign bonds (DLSB). These financial instruments are an innovative way to incentivise governments to target reduced deforestation while raising money.

Uruguay was the first nation to issue a DLSB. Their framework for a Deforestation-Linked Sovereign Bond (DLSB) referenced Planet Tracker’s research and used the structure Planet Tracker recommended in its July 2021 report. The Uruguay framework links sovereign bond coupons to 2 KPIs: climate and deforestation. As we suggested in our report, the coupon steps up if either target is missed but steps down if either target is met.

The fact that a sovereign bond issuer has followed our recommendations clearly demonstrates the viability of our proposed deforestation-linked sovereign bond structure. We continue to advocate for other governments striving to limit deforestation (e.g. Brazil) to consider this financial instrument as part of their toolkit.

The latest reports to your inbox

Don’t miss out! To receive Planet Tracker's reports just click below and complete the contact form.

Sign up