Economic Update

Published 14 Apr 2022

– In March the World Bank launched the world’s first wildlife conservation bond

– So-called rhino bond tied to black rhino population growth in South Africa

– Growing trend of innovative financing designed to meet ESG goals

– Environmentally linked 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 alike continue to look for innovative ways to finance environmental projects in emerging markets.

First announced in mid-2019, the five-year, $150m “rhino bond” is an outcome-based financial instrument tied to the rate of population growth of black rhinos in South Africa’s Addo Elephant National Park and Great Fish River Nature Reserve.

Differing from traditional bonds or conservation financing, investors will not receive coupon payments on the bond. Instead, the issuer will make conservation investment payments to finance rhino conservation at the two parks.

If the population increases, investors will then receive a “success payment” of between 3.7% and 9.2%, stemming from a grant provided by the Global Environment Facility, in addition to principal redemption of the bond. However, no payment will be distributed if there is no change in the population – something that will be independently calculated by the environmental organisation Conservation Alpha and verified by the Zoological Society of London.

The model is structured in a way that aims to encourage more private investment in conservation, while also easing some of the risk for governments and donors.

Black rhinos are one of the most endangered animals in the world, with the global population falling by 96% between the 1970s and 1990s to less than 2500, as they were hunted for their horns.

It is estimated that the current population has increased to between 5000 and 5500 on the back on conservation efforts, with half the total in South Africa.

Rise of outcome-linked finance

The rhino bond is the latest in a growing trend of outcome-linked financial instruments designed to achieve ESG goals.

As OBG has detailed, in March Chile became the first sovereign to sell sustainability-linked bonds (SLBs) with its $2bn, US-dollar denominated issuance.

In a similar vein to the rhino bond – and in contrast to traditional types of green or environmentally focused finance – SLBs incentivise climate-positive solutions by incorporating a number of environmental objectives, along with a series of penalties for issuers if they fail to meet the goals.

In Chile’s case, the bond stipulates that the country may emit no more than 95 tonnes of carbon dioxide and equivalent by 2030, and that 60% of its electricity production should come from renewable sources by 2032.

ESG focus in finance

As the corporate focus globally turns towards ESG, this recent bond issuance demonstrates how emerging markets are well placed to develop innovative solutions to fund environmental projects.

A prime example was the government of Belize’s decision to launch a debt-for-nature swap to restructure its sole sovereign bond. Under the terms of the deal, Belize bought back its debt at a significant discount – $0.55 cents for every $1 – in exchange for increasing efforts to protect its marine environment.

“Blue bonds”, or debt instruments issued to support investment in marine-friendly initiatives and the blue economy, are gaining traction globally.

Following the launch of the world’s first sovereign blue bond – a $15m issuance by the Seychelles in 2018 – a number of international institutions have issued blue bonds to finance ocean-related projects around the world.

Given the demand for sustainable development and the push to reduce emissions, the recent proliferation of environmentally linked bonds could help set a precedent for global finance moving forwards.