Rhino bonds: firms collaborate on blended finance solution to conservation

Author: John Crabb | Published: 28 Aug 2019
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A number of leading financial, legal and charitable organisations have come together to develop a strategy that they hope will help save the world's population of black rhinos from complete extinction. The instrument, a take on an impact bond, will pay investors based on indicators linked to the achievement of a pre-defined conservation performance – or in laymen's terms, if there are more black rhinos.

Although still in the stage of finalising an investor pool, the concept of the so-called rhino bond is to "mobilise new capital for conservation and to shift funding to focus on delivering outcomes". Likely to be in the region of $50 million, investors will be paid out if the population of black rhinos increases in a handful of sites across South Africa and Kenya.

According to Marisa Drew, CEO of the impact advisory and finance department at Credit Suisse, one of the partners behind the project, the concept of the rhino bond is rooted in the idea that multiple actors can come together to make real change in some of these areas that have either an environmental or social purpose.

"Traditional models that have historically been rooted in the NGO or non-profit community, particularly when it comes to conservation, are facing limitations because the capital typically follows annual fundraising cycles and is not scalable," she said. "This form of funding is not enough on its own and it's also recognised that the governments [of those countries] the most rich with wildlife are the most resource constrained, even though investment wildlife conservation would provide disproportionate benefits to their economies."

"With all that capital and all that good will that exists, we still have situations like the near extinction of northern white rhinos"

"Yet, with all that capital and all that good will that exists, we still have situations like the near extinction of northern white rhinos," she added.

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From this issue a concept called blended finance has now surfaced, which is the idea that if you bring multiple actors — across the public and private sectors — together in the same structure to attack a problem, then maybe one plus one is a whole lot more than two. "Each brings different skill sets to the table, and if you can collaborate across the different benefits you bring to the table it might be able to create a model for scalable conservation finance," said Drew.

A number of entities, including Credit Suisse and UBS, Conservation Capital, Conservation Alpha, the IUCN SSC African and Asian Rhino Specialist Groups (AfRSG and AsRSG) and the World Wildlife Fund (WWF) are involved in the development of this project, with law firm DLA Piper providing legal assistance on a pro-bono basis.

Outcome based

Where it differs to other similar instruments is that the bond is not based on output, but rather outcome. One or more financial investors will come in up front and put the capital forward for the project, and if the pre-determined outcomes are achieved they will see a return. If the project fails, because rhino numbers fall, then these investors will get zero return and depending on how the structure ends up, may also lose their principal. These investors will acknowledge that there is risk to both their principal, and return, but feel sufficiently strongly about this outcome that they are willing to put their money where my mouth is.

There is a second set of investors that come in, known as outcome payers, who will pay out both the principal and return to the initial investors in the situation in which the outcome is met. This is instead of an investor such as a charity coming in up front, which is the usual model.

"What we do sometimes hear from certain types of donors is a belief that there is too weak a link between their initial investment dollars and what they are trying to solve. In many cases, especially for larger foundations, they prefer to use their charitable dollars to pay for outcomes" said Drew. These charities have the capital to allocate in a charitable way, but would really like to know that 100% of their capital is funding success rather than just hope.


According to Tony Lopez, partner At DLA Piper, in addition to measuring the number of rhinos in existence in the specified locations at the end of the five year term, versus estimated rhino population numbers without intervention, the outcomes may also be based on other variables. "Similarly to the way that investors would view a profit-by-profit making enterprise; instead of looking at how many units a manufacturing company produces and profits, this investment would view success more along the line of how many new and better forms of caretaking have been established and are operating well, and how many rhinos are in the world," he said. 

"We want to create a system where the fundamental equivalent of the profit making is a measurable conservation and social outcome," Lopez added. 

"We want to create a system where the fundamental equivalent of the profit making is a measurable conservation and social outcome"

"The goal in the end would be that investors who wouldn’t necessarily be putting money towards conservation would be putting it to a different opportunity, a well-run conservation site will have a social and economic ripple effect through a community," he said. Within this framework the donor is underwriting all the interventions up front. There will be milestones that have to be achieved to demonstrate progress, but ultimately they are taking on all of the underlying performance risk.

"Risk doesn't come for free, it is all about whether the project can deliver the results, cost effectively, to the degree that outcome payers are having to pay to be risk free and only pay when this result is on the table," said Oliver Withers, head of conservation finance and enterprise at the Zoological Society of London (ZSL).

In effect, this is a private equity play, ZSL and the other organisations involved, have constructed a portfolio of sites and asset values, based on the fact that rhino populations are very important to the African continent. "To make sense it has to be more profitable for the outcome payer, more bang-for–buck, or value for money - what we have done is created a framework around the impact bond model that allows us to get the impact pickup in growth rates," added Withers.

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According to Drew, the response has been extraordinary, and the bank is working alongside a large number of organisations to bring it all together. "First we have to get everybody to agree on the final details of the structure, such as the coupon, at what break point do people make a return and whether or not there will be downside protection for investors. There are also many other moving parts that affect the structure, such as the potential for rhino [population] growth rates in the various sites," she said.

"Extensive work has already gone into the mapping and feasibility analysis, where the investment dollars will be applied, etc., but ultimately, those putting up the capital will have to agree that they are comfortable with the economics and the targets."

This will be the first ever development bond tasked with saving wildlife. In 1970 there were 65,000 black rhinos whereas today there are 5,300. Black rhinos are on the critically endangered list, but at the current rate of decline — about three black rhinos are poached every day — the animals will be extinct within a decade, or sooner.

There are similar issues facing other animals, such as elephants, and with so much wildlife facing extinction it is crucial that projects like this are successful. "We want to prove this as a viable model for bringing different stakeholders to bear; there is no reason why, if this is successful, that it couldn’t be scaled or replicated to protect different animals at risk from human activities" said Drew.

This bond is something of a first step, and the aspects of it that work will be taken and hopefully replicated and built upon further.

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