‘Rhino Bond’ breaks new ground

‘Rhino Bond’ breaks new ground

Congratulations, Oliver Withers and colleagues at the London Zoological Society, for the design and launch of the first Rhino Impact Bond.

By cleverly adapting conventional market instruments to deliver social outcomes, this instrument expands the pool of otherwise scarce capital for conservation, incentivises innovation around what works and rewards outcomes. The Tourism Conservation Fund will be watching the performance of this initiative with interest.

Rhino Bond breaks new ground
Financial Times | John Aglionby in London JULY 16, 2019

Conservationists have started marketing a five-year “rhino bond” which bankers say is the world’s first financial instrument dedicated to protecting a species.

Investors in the $50m bond will be paid back their capital and a coupon if African black rhino populations in five sites across Kenya and South Africa increase over five years. The yield will vary depending on changes in the rhino population, which has sharply declined since the 1970s.

The bond is likely to have different categories of investment, with some investors taking a “first loss” position if rhino population targets are missed, according to Conservation Capital, the company arranging the offer.

If rhino numbers drop, those investors will lose their money depending on the scale of the decline and the terms of their investment while investors in other categories will be repaid.

Organisers say the structure — a so-called “outcome payments” model that has been used by other issuers to finance health and education projects — could revolutionise conservation financing as traditional donors such as governments and multilateral organisations will disburse money only on results. It could also bring the private sector into species protection in a new way, because the return on investment will comprise both a financial return and a measurable conservation objective.

“There’s a $1bn-a-day funding shortfall for conservation and the traditional sources of conservation finance — philanthropists and donor agencies — are not going to be able to pick up the difference,” said Giles Davies, chief executive of Conservation Capital.

Black rhino numbers in Africa dwindled to 2,300 in the early 1990s from more than 63,000 in the 1970s, according to the International Rhino Foundation. The population is currently around 5,000, but poaching remains a significant threat. Dominic Jermey, director-general of the Zoological Society of London, the charity that runs London Zoo and which is managing the rhino bond initiative, expressed confidence that the bond would reach its target. Organisers are hoping to launch it in the first quarter of next year. “There are vast pools of capital looking for a home and post-Blue Planet II there’s great interest in sustainable conservation,” he said, referring to the UK TV documentary series presented by David Attenborough. Conservation is usually financed either by direct donations or funding earmarked for specific “outputs”, such as building fences or training rangers. Hurdles for the backers of the rhino bond include persuading investors to take the upfront risk and convincing traditional donors to agree to a five-year deferred liability — longer than the usual practice of three to four years. “Once you get the change of mindset, people should look at it as a standard financial instrument,” Mr Jermey said. Institutional investors are beginning to express interest in the bond. Marisa Drew, chief executive of the impact advisory and finance department at Credit Suisse, said the bank saw the bond as a “unique concept” that unites a range of stakeholders and that the bank was considering acting as a syndication agent. “It is this type of innovative financing structure that is needed to tackle some of our most challenging conservation requirements,” she said.

The British government is among potential donors that, through the environment department, has supported preparatory work on the bond. But no decisions have yet been taken on whether to get involved, according to a person briefed on the discussions. Tom Hall, the head of philanthropy services at UBS Wealth Management, said outcome payments were increasing in popularity, with some $600m being raised in the past year through the model. “This has never been done before so the risks are around the ability of the organisations involved to deliver outcomes,” he said. “It’s not headline return that’s the challenge but the risk to capital and how you price that.”

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