A WILDLIFE BOND: A new lifeline for wildlife conservation finance

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World Bank has launched the “Rhino Bond,” to conserve the endangered species in South Africa. PHOTO/SHUTTERSTOCK

By PATRICK MAYOYO

The World Bank has launched the Wildlife Conservation Bond (WCB) in support of South Africa’s efforts to conserve endangered species a move described as a first-of–its-kind in the capital markets.

Also known as the “Rhino Bond,” this five-year $150 million Sustainable Development Bond includes a potential performance payment from the Global Environment Facility (GEF), which will contribute to protecting and increasing black rhino populations in two protected areas in South Africa, the Addo Elephant National Park (AENP) and the Great Fish River Nature Reserve (GFRNR).

Addo Elephant National Park (AENP) is managed by the South African National Parks (SANParks) and GFRNR is managed by Eastern Cape Parks and Tourism Agency (ECPTA).

The WCB is a first-of-its-kind, outcome-based, financial instrument that channels investments to achieve conservation outcomes – measured in this case by an increase in black rhino populations. Rhinos are considered an umbrella species that play a crucial role in shaping entire ecosystems on which countless other species depend.

Through the WCB, investors are supporting the financing of activities to protect and grow a critically endangered species with clear conservation targets, contributing directly to biodiversity, and bringing jobs to local communities through the creation of conservation-related employment in a rural and underserved region of South Africa.

“The Rhino Bond is a groundbreaking approach to enabling private sector investment in global public goods — in this case biodiversity conservation, a key global development challenge,” said World Bank Group President David Malpass.

Mr Malpass said the pay-for-success financial structure protects an endangered species and strengthens South Africa’s conservation efforts by leveraging the World Bank’s infrastructure and track record in capital markets.

“Importantly, it can be replicated and scaled to channel more private capital for other conservation and climate actions and development objectives around the world,” he said.

Investors in the WCB will not receive coupon payments on the bond. Instead, the issuer will make conservation investment payments to finance rhino conservation activities at the two parks.

If successful, as measured by the rhino growth rate independently calculated by Conservation Alpha and verified by the Zoological Society of London, investors will receive a success payment at maturity, paid by the IBRD with funds provided by a performance-based grant from the GEF, in addition to principal redemption of the bond.

World Bank Group President David Malpass. PHOTO/WB
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This represents a new approach in conservation financing that passes project risks to capital market investors and allows donors to pay for conservation outcomes. Credit Suisse was the sole structurer and joint bookrunner with Citibank.

In the worst-case scenario, if the rhino population growth is flat or negative, investors will receive principal repayment at maturity, with no success payment. In the best-case scenario, if the rhino population grows above 4 percent, investors will receive the principal amount back and the success payment funded by the GEF. In intermediary outcomes, with population growth between 0 and 4 percent, the success payment will increase by fixed amounts over the life of the bond in a step-up fashion.

In all cases, the bondholders will be promoting efforts in biodiversity conservation. This is because, in exchange for the potential success payment at maturity, investors agree to forego the coupons a traditional World Bank Group bond would pay. Those foregone coupons are the source of financing for the conservation activities on the ground in the two parks selected for this project.

“We are proud to be the lead investor in this innovative transaction that provided not only attractive total return potential, but also the direct and measurable outcomes we look for under our proprietary Impact Framework,” said Stephen M. Liberatore, Head of ESG/Impact – Global Fixed Income at Nuveen.

Mr Nuveen said they were especially hopeful that this type of public-private partnership can serve as a template for future transactions to help improve biodiversity globally.

These activities are designed not only to aim for black rhino population growth of at least 4 percent, but also to improve the management of over 150,000 hectares, reduce poaching and provide over 2,300 jobs for local communities in and around both protected areas – a welcome boost in a region severely impacted by COVID-19.

The bond issuance followed earlier work to identify suitable parks, explore the financial features of the bond, and establish the types of conservation activities that should be financed to meet the black rhino population growth goals. This product development phase work under the $4.5 million Rhino Impact Investment Project was funded by the GEF and led by UNDP in partnership with the Royal Foundation, the United Kingdom’s Illegal Wildlife Trade Challenge Fund, and the Zoological Society of London.

This innovative conservation bond, which the Global Environment Facility (GEF) is delighted to support, opens a new avenue for financing biodiversity protection at a critically important time. This is a great example of how capital markets can meet both investor and conservation priorities,” said Carlos Manuel Rodriguez, GEF CEO and Chairperson. 

Mr Rodriguez added that the GEF’s financial backing for this bond gave it the risk/return profile that investors needed to enter the biodiversity space, and he was confident that their engagement will only grow from now and with future conservation bonds that benefit other umbrella species and their ecosystems.

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