[PHOTO CREDIT MARTIN HARVEY/WWF]

Rhino romances in South Africa’s parks could provide a 9% boost to international bond holders’ returns in a first-of-its-kind conservation bond announced this week (23 March). The World Bank is raising nearly $150 million for environment and conservation activities through the issue of a 5-year Wildlife Conservation Bond issued by its International Bank for Reconstruction and Development (IBRD). Some of the funds will be used to fund two Eastern Cape nature reserves where the critically endangered black rhinos live.

Bond holders will redeem their investments on 31 March 2027 and they also receive a bonus payment based on the rate of population growth. According to the formula published by the World Bank, returns are based n preset levels of X the final rhino population growth rate over the period – not the mating activity of the rhinos. If X is zero or negative they will receive zero extra payment up to when X is greater than 4% they will receive a conservation success payment of $91.73 per $1,000 invested.

The potential performance payment will come from a performance-based grant from the World Bank’s Global Environment Facility (GEF) with a maximum success payment of $13.8m.

Clear performance targets

According to the Bank: “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.”

A black rhino, at 800kg to 1.4 tons, is smaller than a white rhino and has a hooked upper lip as it eats shoots and leaves from bushes and trees. Between 1960 and 1995 the population fell by 98% to under 2,500 according to the World Wide Fund for Nature. Numbers have since recovered to 5,600, spread across several African countries. They are still critically endangered due to extensive poaching, including demand for rhino horn in traditional Chinese medicine in Vietnam and China, as well as loss of habitat.

The rhino population to be measured is in the beautiful 1,640 square kilometre Addo Elephant National Park and the 450 square kilometre Great Fish River Nature Reserve. The rhino growth rate will be independently calculated by Conservation Alpha and verified by the Zoological Society of London.

Similar bonds could be used to protect black rhino populations at three Kenyan reserves, or it could be used for other species such as lions, tigers, gorillas and orangutans, according to this story by Antony Sguazzin on Bloomberg.

The bond will be finalized on 31 March and minimum investment is $100,000. According to the pricing information, the bond was sold at 94.84% of its nominal aggregate amount, so the difference between the invested amount and the nominal amount to be refunded in 2027 boosts the investors’ returns. Credit Suisse was the sole structurer and joint bookrunner with Citibank.

Michael Bennett, head of market solutions and structured finance in the Treasury department of the World Bank, said investors include Nuveen Asset Management LLC and high net worth individuals: “This changes the paradigm a little on donor funding. The success risk is being transferred to the investors.”

David Malpass, World Bank President said: ““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. 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. It can be replicated and scaled to channel more private capital for other conservation and climate actions and development objectives around the world.”

Stephen M. Liberatore, Head of ESG/Impact – Global Fixed Income at Nuveen, said: “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. We are especially hopeful that this type of public-private partnership can serve as a template for future transactions to help improve biodiversity globally.”

What do “sustainable bonds” support?

The bond is aligned with the Sustainability Bond Guidelines published by the International Capital Market Association and support the financing of a combination of green and social, i.e., “sustainable development” projects, programmes and activities in IBRD member countries. For more see the World Bank Sustainable Development Bond Framework. Sustainable bonds have been used to finance a variety of outcomes from marine and fisheries projects in the Seychelles to girls’ education in rural India, according to Bloomberg.

Addo is managed by South African National Parks (SANParks) and was proclaimed in 1931 to conserve the last 11 elephants in the area and now has over 600. The Great Fish River reserve is managed by Eastern Cape Parks and Tourism Agency (ECPTA). Rhino protection helps other species that share their habitat as large herbivores are critical to biodiversity hotspots such as the “rich and ancient biome” called Albany Thicket. The ecosystems contribute to South Africa’s national economy through tourism, job creation, and as an important source of foreign exchange.

Conservation creates jobs in South Africa

South Africa’s Minister of Forestry, Fisheries and the Environment Barbara Creecy said: “As South Africa we are excited to be at the forefront of an innovative new financial instrument aimed at boosting our efforts to protect the world’s largest rhino population. We would like to acknowledge and express our appreciation for the considerable effort by numerous role players over the last few years that has resulted in this much needed injection of funding into the biodiversity sector.

“We are confident that this will assist in increasing the rhino growth rate and stimulate the development of additional novel market-based mechanisms to support the objectives of the New Deal for People with Nature. South Africa is committed to securing nature’s contribution to people through well-managed and expanding conservation areas that contribute to inclusive rural economic growth in thriving biodiversity economy node.”

Instead of coupon payments, the World Bank will make payments totalling ZAR 152m ($10.4m) to the park managers in instalments to fund rhino conservation “to implement conservation and adaptive management activities that seek to maximize net rhino growth rates over five years.” No details were given of activities to encourage rhinos to increase.