Is the $150m Rhino Bond Financial Innovation or Profiting off Conservation?


About a month ago, conservation finance experienced a “groundbreaking” momentThe World Bank’s (WB) International Bank for Reconstruction and Development (IBRD) issued a $150m ‘rhino bond’ to fund the protection of black rhinos, whose population declined by more than 90% as the black market demand for their horns has increased.

Saving the rhino (while gaining a buck)

Loss for some is gain for others. Their conservation turned into a profitable investment opportunity:

“We are especially hopeful that this type of public-private partnership can serve as a template for future transactions to help improve biodiversity globally” said Stephen Liberatore from Nuveen. 

From a critical perspective, the rhino bond can be seen as another step in a global neoliberalisation and financialisation of nature. “What do capital markets have to do with biodiversity? Until now, very little. This changed this week,” clarifies Global Environment Facility. The solution to a public challenge is delegated to private investors. After a shift in the governance of development and climate, biodiversity is the new arena, as confirmed by Credit Suisse, “a new blueprint for the way conservation is financed and (…) a key enabling tool for the delivery of the post-2020 Global Biodiversity Framework”.

The bond takes on the structure of pay-for-success or impact bonds. After 5 years of maturity, the principal will be repaid by IBRD, i.e., by projects in their portfolio, and a success fee (instead of coupon) calculated based on the black rhino population growth will be paid to investors by the GEF (see structure and success fees calculation below). 

Only around $10m (7% of the issuance) will support enhanced conservation and new jobs at the Great Fish River (GFR) Nature Reserve and the Addo Elephant National Park, and the rest ($140m) will be invested in other WB’s green and social projects. The sustainable impact of supported projects should be assured by the WB’s Sustainable Development Bond Framework (verified in 2015 by CICERO Shades of Green), which refers to the relatively vague guidelines and principles of the International Capital Markets Association and more detailed WB’s standards. Alarmingly, no other independent classification and verification are followed, and the monitoring and evaluation are done by WB themselves. The bond was designed and interventions selected within a $4.5m research project delivered by a multitude of Global North players, such as Prince Harry’s Royal Foundation, Zoological Society of London, Credit Suisse, World Wildlife Fund, or Conservation Capital.

Financing structure (source)

Success fee calculation (source)

From “donors” to “investors”, with a debt to be repaid

The bond is promoted as financial innovation, yet, its role as a political-economic policy that justifies the emergence of certain socio-ecological dynamics is overlooked. It is praised for passing the financial risk from “donors” to “investors” and enabling “access to additional financing that South African parks would otherwise not have access (to)”. The interpretation ignores the cases where substantial not-for-profit financing has been successful during the COVID crisis, such as the Wildlife Conservation Network’s Rhino Recovery Fund ($2.1m in 2020-2021). Moreover, regarding the risk, not the principal but the interest is not guaranteed, i.e., investors are probably losing nothing but potential alternative investment opportunities. Considering that a 5-year South African T-bond promises an 8.15% yield, the rhino bond success fee can be expected between 7.3 to 9.1% (based on the growth expected by protection authorities), and the additional ESG and CSR value of the rhino bond, the opportunity costs are not too high if any. At the same time, unlike not-for-profit financing, a bond is a debt to be repaid, in this case, at least partly by IBRD-indebted projects. So the financing reinforces financialisation at a point when emerging economies are already heavily indebted (according to WB itself) and would benefit from debt relief and restructuring instead.

The need for local political and ecological context

The bond promises to secure growth for the black rhino population and support local communities. For the former, the project plans to redistribute rhinos to decrease density in limited space and make their access to water easier by fencing off elephants. Supposedly simple solutions that should be assessed comprehensively. Also, it is unclear whether the project aims to extend park enclosures. Since the areas are populated and provide communities with vital income (livestock from GFR brings 28% of local communities’ income), such an intervention might have an adverse socio-economic impact. The risk of land claims is recognised in the financial documentationQuite controversial is also the plan to scale up anti-poaching. The last decade of the South African war on poachers gave rise to toxic militarisation, partly led by the US and the UK, and caused atrocities and killings. If the project reinforces local inequities, it will “create the perfect storm for poacher recruitment” among vulnerable locals. The effect of the planned human rights training for rangers and black-listing of the purchase of weapons and ammunition is rather doubtful. If nothing else, there is a risk of motivating locals’ animosity towards conservation, yet no communication campaign seems to be planned.

“If proven effective, this concept and structure could potentially be replicated and adapted to address challenges at other rhino sites, or for other wildlife species and development challenges, more generally“, envisions WB. If only the effectiveness assessment accounted for the complexity of political-ecological context instead of over-simplifying quantitative metrics. Even then, the financialisation of local socio-nature seems inevitable under market-based governance. The money is definitely needed, but the issue should be governed locally rather than by Global North-driven financial innovation. Such solutions should be narrated critically.

David Nemecek is alumnus of SOAS MSc Environment, Politics and Development. David works in sustainable finance and specialises in financial instruments, banking and related regulation.

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