Citi closes $72 million bond tied to delivered biochar credits

Citi closed a $72 million bond whose investor payments depend on carbon credits issued and delivered from Applied Carbon's Texas biochar project, ESG Dive reported on Oct. 23.

Investors give up a traditional coupon, and their return tracks the issuance and delivery of credits from the project. Citi named Nuveen as a participant in the issuance and did not disclose the other investors. Applied Carbon builds biochar in the field with a mobile system that collects crop residue, pyrolyzes it and cools the result, according to the company's website.

Kumo said Microsoft is a long-term offtaker for the project, so allocators' due diligence shifts from a rating to delivery: who verifies the credits, what volume the offtake obliges, and how payments behave if issuance lags.

Biochar is made by decomposing biomass without oxygen, leaving a carbon-rich material that can be mixed into soil to store carbon dioxide drawn from the atmosphere, according to the U.S. Agricultural Research Service, part of the U.S. Department of Agriculture.

Kumo said in a separate Oct. 21 release that it worked with Applied Carbon to secure the funding. The bond is the sixth carbon outcome bond Kumo has tracked since 2023, and the first not issued by the World Bank; all six were arranged by commercial banks, according to the firm. "The innovation here is that a commercial bank and a private investor have replicated the structure," Kumo said.

The $72 million deal is a fraction of the $1 trillion sustainable-finance target Citi set; the bank had counted $647.2 billion by late August, ESG Dive reported. What Kumo calls replicable is the structure, not the size: a commercial bank's issuance, a named institutional buyer in Nuveen, and a corporate offtaker in Microsoft.