The structure of the bond – akin to a social or sustainable development bond, where both investor principal and return are at risk and dependent on social, environmental or developmental outcomes – means that investors sacrifice coupon payments, which will instead be invested in conservation efforts.
$10m in forgone coupons will be directed at supporting the growth of black rhino population in South Africa’s Addo Elephant National Park and the Great Fish River Nature Reserve. The settlement date for the bond – when the transfer of funds will be finalised – is due 31 March 2022.
“Basing the bond on the conservation of a single charismatic species is a little tokenistic, but this is an important first step towards mobilising the significant funds we need to protect our biodiversity and the ecosystem services we all need to survive,” says Niall McCann, conservation director at National Park Rescue.
“But to address the dual threats of climate change and biodiversity loss, we need investors to support projects that deliver a return for the planet as well as for shareholders, and conservation bonds are an effective way of doing this,” he says.
Investors will receive a pay-out depending on rhino population growth over five years. The maximum pay-out will be $13.76m if the growth reaches or exceeds 4%. Payment to investors will be made by the World Bank via a grant from the Global Environment Facility (GEF), the largest multilateral trust fund dedicated to investing in nature.
Through the structure of the bond, project risk is passed to capital market investors, which allows donors to pay for conservation outcomes directly. The bond also comes with a AAA credit rating on the principal, as it is ascribed directly to the World Bank as opposed to GEF.
“By transferring the risk of underwriting a conservation project up front to the private sector, success will be measured through outcomes and impact as opposed to inputs and outputs,” says Oliver Withers, Biodiversity Lead, Global Sustainability at Credit Suisse. Credit Suisse was the sole structurer of the bond and joint bookrunners with Citibank.
“It has taken time to gather a reliable body of conservation science and best-practice, supported by data, and to develop universally accepted standards around how we choose rhino conservation projects and issue related bonds,” says Withers.
“Nevertheless, one of the reasons why rhinos were chosen as a conservation target is because there is a strong body of knowledge around rhino conservation. And while there will be specific challenges to supporting black rhino population growth in particular, the recovery of white rhino in South Africa from the 1950s demonstrates that we can successfully protect and grow rhino populations,” he says.
At the turn of the 20th century, there were approximately 50 white rhinos left in Africa. Recent conservation and protection efforts saw white rhino population mushroom to over 20,000 in 2017, according to the World Wildlife Foundation, although numbers have since dwindled following a rise in illegal poaching in South Africa over the last five years.
According to data collected by conservation charity Save the Rhino International, the black rhino population in Africa is estimated to be between 5,366 and 5,627. Addo Elephant National Park and the Great Fish River Nature Reserve have 50 and 100 black rhinos respectively.
Five sites were shortlisted under the Rhino Impact Investment (RII) Project for inclusion in the WCB. While two were in South Africa, the other three were in Kenya. All five received funding and technical assistance to achieve investment readiness, but the sites in South Africa achieved investment readiness first and were thus included in the first WCB. It is hoped that sites in Kenya will receive cash from the next round of funding.
But biodiversity across the globe is in sharp decline. To date, the nature funding gap sits at approximately $824bn a year, according to data compiled by environmental non-profit company, The Nature Conservancy. So, is $150m for the first WCB and $10m to help support the black rhino population growth in South Africa enough?
“Speaking to people on the ground – management teams, park rangers and others that work in these conservation sites – it is abundantly clear that conservation is starved of capital,” says Withers.
“Within the current context, $10m targeted to protecting and growing the country’s black rhino population will go a very long way,” he says.
As McCann says: “The new WCB is a genuinely positive step for conservation. Impact bonds have proved highly effective for financing projects in other sectors, such as education and healthcare, and given the conservation crisis faced by Africa’s wildlife, it is important that conservation projects benefit from innovative financial mechanisms.”
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