By Matt Wirz

As Brazil struggles with deforestation, one of the country's largest paper manufacturers is pitching investors a bond that will cost the company money if it fails to meet greenhouse gas-reduction targets.

The new type of security from Suzano SA is part of an evolution in the green bond market as companies and nations look for new ways to fund themselves by tapping into rising demand for investment products that further environmental, social and governance, or ESG, objectives.

Suzano also hopes the bond will help distance the company's image from the accelerating destruction of Brazil's rainforest under the administration of President Jair Bolsonaro.

"It's an important step to show we have skin in the game, especially in this moment," said Suzano Chief Financial Officer Marcelo Bacci. "The fires and deforestation are caused by criminals, and we want to make sure that everyone understands that Suzano has a completely different story."

Suzano will hold meetings with institutional investors next week to market a sustainability-linked bond, the first such deal in Latin America, people familiar with the matter said. The deal, which was structured by JPMorgan Chase & Co., is expected to raise $500 million to $1 billion and proceeds will be used to repay existing debt, they said.

Rarely used five years ago, so-called green bonds have grown mainstream with Germany issuing about EUR6 billion ($7.1 billion) of the securities this week. Sustainability-linked bonds are the next-generation securities Wall Street is offering environmentally and socially conscious investors.

While proceeds from green bonds and similar securities must be applied exclusively to environmental or social projects, borrowers can use cash borrowed through sustainability-linked bonds for general corporate purposes. The catch is that if the borrower fails to hit a key environmental performance indicator by a predetermined date, the interest rate of the bond will rise.

"There's a much larger opportunity set for companies to issue sustainability-linked bonds," said Scott Mather, a portfolio manager who oversees ESG integration at bond-fund giant Pacific Investment Management Co.

Suzano's new bond will be tied to its commitment to cut corporate greenhouse-gas-emission intensity to 0.19 tons of carbon-dioxide equivalent by 2025 through reduction of emissions from its own manufacturing and from the electricity it consumes. If the company misses that target, the interest rate on the bond will step up by 0.25 percentage points, according to marketing materials filed with the U.S. Securities and Exchange Commission.

Transparency has been a hot-button issue in the burgeoning marketplace for ESG investments, with some green bonds funding oil-and-gas companies and purportedly environmentally focused funds buying technology stocks instead.

The market linked to sustainable-development goals will autocorrect for borrowers that fail to deliver the environmental improvements they promise, Mr. Mather said. Companies that don't meet their objectives will see their bond prices fall and credit ratings drop, he said.

Elsewhere in debt markets, the yield on the benchmark 10-year U.S. Treasury note edged up to a recent 0.656% from Wednesday's close of 0.650%, according to Tradeweb data. The WSJ Dollar Index rose 0.3%

Write to Matt Wirz at matthieu.wirz@wsj.com 



  Corrections and Amplifications


  This article was corrected at 11:22 a.m. ET because it incorrectly stated that Marcelo Bacci is the Chief Executive Officer of Suzano. He is the Chief Financial Officer.