Funding wildlife conservation: will the rhino bond set a precedent? | [term:name] 2022
– In March, the World Bank launched the world’s first wildlife conservation bond
– The so-called rhino connection linked to the growth of the black rhino population in South Africa
– Growing trend of innovative financing designed to meet ESG objectives
– Environmental bonds could set a precedent for global finance
The World Bank has issued the world’s first wildlife conservation bond, raising money to protect endangered black rhino populations in South Africa. The move comes as governments and institutions continue to seek innovative ways to fund environmental projects in emerging markets.
Announced in late March, the five-year, $150 million ‘rhino bond’ is a performance-based financial instrument tied to the growth rate of the black rhino population in Addo Elephant National Park and Game Reserve. of the Great Fish River in South Africa.
Unlike traditional bonds or conservation funding, investors will not receive coupon payments on the bond. Instead, the issuer will make conservation investment payments to fund rhino conservation in the two parks.
If the population increases, then investors will receive a “success payment” of between 3.7% and 9.2%, from a grant from the Global Environment Facility, in addition to the repayment of the principal of the obligation. However, no payments will be distributed if there is no change in population – which will be calculated independently by environmental organization Conservation Alpha and verified by the Zoological Society of London.
The model is structured to encourage more private investment in conservation, while mitigating certain risks for governments and donors.
Black rhinos are one of the world’s most endangered animals, with the global population dropping 96% between the 1970s and 1990s to less than 2,500 as they were hunted for their horns.
The current population is estimated to have increased to between 5,000 and 5,500 due to conservation efforts, with half of the total in South Africa.
Ramp-up of performance-based financing
The rhino bond is the latest in a growing trend of performance-linked financial instruments designed to achieve ESG objectives.
As OBG detailed, in March Chile became the first sovereign state to sell sustainability-linked bonds (SLBs) with its $2 billion US dollar-denominated issuance.
In the same vein as the rhino bond – and unlike traditional types of green or environmentally focused finance – SLBs encourage climate-positive solutions by incorporating a number of environmental objectives, as well as a range of sanctions for emitters if they do not meet the objectives.
In the case of Chile, the obligation stipulates that the country cannot emit more than 95 tons of carbon dioxide and equivalent by 2030, and that 60% of its electricity production must come from renewable sources by 2032.
ESG focus in finance
As corporate attention shifts globally to ESG, this recent bond issuance demonstrates how well-positioned emerging markets are to develop innovative solutions to finance environmental projects.
A prime example was the Belize government’s decision to initiate a debt-for-nature swap to restructure its only sovereign bond. Under the terms of the deal, Belize bought back its debt at a steep discount – 0.55 cents for every dollar – in exchange for increased efforts to protect its marine environment.
“Blue bonds”, or debt securities issued to support investments in marine-friendly initiatives and the blue economy, are gaining traction globally.
Following the launch of the world’s first sovereign blue bond – a $15 million issue by Seychelles in 2018 – a number of international institutions have issued blue bonds to fund ocean-related projects around the world.
Given the demand for sustainable development and the desire to reduce emissions, the recent proliferation of environmentally related bonds could help set a precedent for the future of global finance.