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The International Finance Corporation (IFC) has become the main investor in the first-ever municipal utility sustainability-linked bond in central and southern Europe. The investment includes €72.5 million from a total issuance of €305 million. The bond was issued by Zagreb Holding d.o.o., a city-owned company in Zagreb. The move will enable the city to allocate funds for necessary infrastructure improvements to enhance resource efficiency and increase climate resilience.

The bond aims to encourage Zagreb Holding to invest in waste management and renewable energy. These investments could potentially eliminate 132,000 tons of waste from landfills by 2027 and increase the company’s renewable energy use from 50% to 70% of its total energy consumption between 2023 and 2028.

Croatia’s economy heavily relies on agriculture, fisheries, hydropower, and tourism, accounting for over 25% of the country’s GDP and making it particularly susceptible to climate change. The IFC’s investment is designed to support Croatia’s efforts towards decarbonisation and climate adaptation by helping Zagreb execute its sustainability plan and infrastructure investment strategy.

Croatia experienced a strong, albeit brief, economic recovery following the global financial crisis, the COVID-19 pandemic, and two significant earthquakes in 2021. However, the economic rebound was disrupted by the uncertainties stemming from Russia’s invasion of Ukraine.

Dubravko Karačić, Member of the Management Board of Zagreb Holding said, “We value IFC’s fundamental role in anchoring a successful bond issuance and look forward to continuing the partnership and building on our common focus on sustainability and climate”. 

Ary Naïm, IFC’s Regional Manager for Central and Southern Europe said, “To accelerate economic growth again, Croatia will need to focus on industries and services concentrated in large cities. With this critical investment, IFC can raise the competitiveness of Zagreb, one of central and southern Europe’s leading cities, and help it become an engine of growth and job creation.” 

The IFC’s investment in the bond is expected to strengthen Croatia’s domestic capital market, establish sustainability-linked bonds as a new type of investment, and promote the use of sustainable finance tools in the region. The transaction also has the support of the European Bank for Reconstruction and Development.

Sustainability-linked finance is increasingly seen as a key strategy for capital mobilisation towards a sustainable future. Since 2020, IFC has invested over $5 billion in green and sustainability-linked financing for infrastructure companies in emerging markets, providing additional services such as project preparation support and climate advisory.

In urban development, IFC uses commercial financing to connect cities with capital markets and diversify their investor base. Since 2004, IFC has invested and mobilised more than $10 billion in over 320 urban infrastructure projects.