A key topic at the United Nations biodiversity conference in December will be how wildlife conservation funding can be increased. With the loss of fish, wildlife, and habitat seen as a top threat to the global economy, industry and investors are eager to make conservation their business. Opening pathways for them to do so is critical to reducing existing shortfalls in conservation finance.
One promising approach is “performance-based conservation,” also known as “pay for success” or “environmental impact bonds.” These schemes entail private sector entities paying the upfront costs of conservation programs, such as efforts to recover endangered species, that outline specific goals. In exchange, investors receive a financial return, paid by multilateral institutions, if the conservation goals are achieved.
The public-private partnerships underpinning performance-based conservation can be an attractive option for countries seeking to meet conservation goals without burdening their public budgets or increasing their government debt. But while the approach is a step in the right direction, it may be only a half measure toward providing countries with sufficient conservation funding to operate resilient programs. Importantly, conservation success stories underwritten by performance bonds risk saddling countries with elevated costs to sustain those successes, bringing the potential for future funding shortfalls and backsliding in wildlife conservation efforts.
One example of where this challenge might emerge is a rhino Wildlife Conservation Bond recently issued by The World Bank. The five-year, $150 million bond, marketed to investors by Credit Suisse, seeks to increase South Africa’s population of Southern black rhinos by providing capital to South Africa National Parks and the Eastern Cape Parks and Tourism Agency to improve and expand conservation efforts. If conservation goals are met, bondholders will be returned the principal in addition to a maximum success payment of $13.8 million. This payment will come from the Global Environment Facility, a multilateral fund that finances the conservation of fish, wildlife, and habitats.
An increased population of southern black rhinos will be a good thing, but it will raise conservation costs, the highest of which will be providing for the animals’ security in the face of relentless poaching. One reason black rhinos are endangered is that they are targeted by poachers for their horns, which can be more valuable per kilo on black markets than certain narcotics. Keeping rhino poachers at bay requires South Africa to field a well-trained and well-equipped force of game rangers, the costs of which can be high. Should rhino populations grow, as the rhino bond aspires, so too will the need to expand the number of rangers to protect them.
However, how an expanded ranger force would be paid for remains an open question. Until it is answered, South Africa faces a potential risk of increased conservation costs and funding shortfalls once the bond matures.
The dilemma presented by the rhino bond suggests that performance-based approaches to wildlife conservation could be optimized by layering them with other, market-based conservation finance mechanisms. Linking species conservation to carbon services and other complementary markets may be one possibility. Doing so could allow investors to create portfolios around a given species of concern. By applying several investment vehicles with varied return horizons to conservation challenges, the successes generated by fixed short-term products—like the rhino bond—would be better ensured.
Performance-based conservation is an idea at the forefront of efforts to protect the planet and its wildlife. Ideas like the World Bank’s Wildlife Conservation Bond have tremendous potential to help finance conservation efforts. Care must be taken in designing such financial products, however, to ensure that once the performance goals underwritten by bonds are achieved they can be sustained. Layering bonds with other nature-based investments to create financial portfolios around species may be a promising way to reduce this risk.
