When Market Decides to Save an Endangered Species: The Critical Case of the Rhino Bond
In 2011, after no sightings for a decade, the International Union for Conservation of Nature formally declared the western black rhino extinct. Together with its eastern, south-central, and south-western cousins, it formed our world’s critically endangered black rhino population. The same year, the Javan rhinoceros, another rhino species, was declared extinct in Vietnam. Some 5,500 black rhinos still walk our planet today. The Javan rhinoceros however, is down to fewer than 50 individuals and is now confined to the island of Java.
Rhinos are in danger. At the beginning of the 20th century, roughly 500,000 roamed across Africa and Asia. By the 70s, some 70,000 lived in the wild. A mere 27,000 rhinos exist in tiny pockets of southern Africa, India, Nepal, Bhutan, and Indonesia today. Several factors are to blame for this steep decline. Rapid urbanization, encroachment, poaching to satiate East Asia’s demand for rhino horns, the controversial trophy hunting industry — the list is endless. In fact, despite conservation efforts, more than a thousand rhinos were killed each year between 2013 and 2017 in South Africa alone. The country reportedly lost an average of 13 rhinos to poaching each year from 1990 to 2007. Today, however, it loses around 3 every day.
Individuals, non-profits, and research institutions worldwide have been working tirelessly to abate the ongoing crisis. In countries like India, Nepal, and South Africa, conserving rhinos often take shape of a war. Rangers here are trained by ex-military specialists. Surveillance tools like drones and light aircrafts are used to spot poaching camps. Forest guards are equipped with automatic rifles to defend themselves from armed poachers. And people regularly lose their lives, under such war like circumstances. In fact, according to the International Ranger Federation, 269 rangers were killed across Africa between 2012 and 2018, the majority of them by poachers. Poaching however, never stops. And despite all the attempts to save them, rhino populations continue to collapse.
Conservation of biodiversity is a formidable challenge. According to a 2012 study (McCarthy, 2012), roughly $80 billion are needed annually to conserve nature worldwide. Take conserving lions in Africa alone for instance. According to Lindsey et al. (2017), parks with lions collectively need anywhere between $1.2 billion to $2.4 billion each year for effective conservation and habitat management. These protected areas though, receive a mere $381 million annually. This phenomenon, better described as a funding deficit, is a universal problem faced by conservationists today.
A lack of global political will leaves most conservation organizations dependent on non-profit grants and generous philanthropic donations. More often than not, these donations are barely enough to keep conservation efforts afloat. In fact, Giles Davies, chief executive of Conservation Capital, says that conservation faces a $1 billion shortfall each day. According to him, grants and other forms of donor based mainstream funding mechanisms barely succeed in overcoming that difference.
Recognizing some of these challenges, the World Bank plans to sell the world’s first wildlife bond this year, with an emphasis on conservation of black rhinos. Largely termed as the Rhino Impact Bond, this program will raise roughly $45 million and will operate similar to any other debt security with an emphasis on impact. The five year bond will lock in the much needed money for conservation from investors, funnel it over to two state owned reserves in South Africa, and pay back with a return depending on the program’s impact on the population of black rhinos. If population increases, investors get a decent return on top of their initial investment. If it doesn’t, they lose. This way, people interested in conservation could get a return on their investment with a chance to reinvest any payback money elsewhere. The program currently aims to increase global black rhino populations by 4 percent per year and it will be sold as a World Bank IBRD AAA- rated debt security accounting for a higher level of stability. It, however, is not short of formidable challenges.
The Rhino Impact bond seems to have an unreliable mechanism for future investor repayments. The Global Environment Facility, or the GEF, has taken up the responsibility to foot the bill and reimburse investors with their principal payment and any outcoming payout by the end of five years. This organization in itself is a trust fund composed of 40 different donor countries that donate voluntarily. Because of this nonbinding voluntary nature, the GEF in itself lacks the much needed money to fund most conservation programs. Therefore, while the Rhino Impact Bond might seem like any other mainstream debt security with an emphasis on impact, it is purely a donor dependent non-profit initiative largely relying on a poorly funded organization to pay for necessary conservation programs.
Take the GEF’s latest replenishment cycle for instance. According to its own statistics, funding requirements are voluntarily contributed to once in a cycle of every four years. Because of a lagging global political will, donations are always scarce. In fact, the latest of these cycles saw contributions worth a mere $4.1 billion — an insignificant amount when compared to the much needed $80 billion annual requirement to conserve nature. Dependence on this organization might, therefore, keep most conservation efforts miniscule, temporary, and short term. This is, of course, besides a series of accusations on the GEF pointing towards inefficient performance, internal corruption, and a lack of oversight on funded projects.
In fact, a report by the White House Office of Management and Budget (OMB) found out that the GEF had not fully instituted necessary performance improvements in areas that would measure environmental outcome results and prioritize allocation of its funds based on environmental benefit. According to the report, this resulted in poor management of funded programs and inefficient results upon their conclusion. Unsurprisingly, the report also discovered that the Global Environment Facility lacked strong anti-corruption mechanisms. In 2007, the GEF was caught in a procurement fraud in Africa worth $8 million. In the Philippines, the facility was reportedly operated by an official who awarded grants to her local non-profit that later siphoned money to her family’s cash vault. The list of accusations is endless, as it is for several other donor organizations. The take home message, however, is pretty clear: The Rhino Impact Bond, or any other conservation related debt fund, can simply not rely on generous non-profit donations for debt repayments if they wish to survive long term.
What might they need then? Multi-stakeholder engagement and community operated sustainable businesses might have an answer. Most wildlife reserves and ecological hotspots around the world are in places where wildlife and indigenous communities coexist. In fact, in most of these places the two are largely dependent on each other. Indigenous people and their community members practice — or have done so until recently — forms of herding, hunting, and agriculture that often enable biodiversity to thrive. In large tracts of land across Northern Philippines for instance, members of the Ibaloi community have traditionally practiced an ancient method of agriculture that incorporated growing wild species of several plants adjacent to the mainstream domesticated crops. This in turn yielded habitats that were often much more biodiverse and species rich than most conventional agricultural fields. In some cases, there were 300 or 500 more species. Creators of the Rhino Impact Bond need to tap into this potential with a business savvy twist.
First things first, the bond creators can work on identifying different community members and stakeholders that live right next to the two black rhino reserves. Who are the people involved? Which communities are at stake? What are their social and cultural beliefs? What forms of cattle ranching and agriculture do they practice? Once analysts, traders, conservationists and underwriters identify answers to such questions, the next step could be to look for different pathways that connect community key practices to the rhino. What factors have led to community coexistence with the rhino for centuries? What are the different ways rhinos obstruct people’s ways of lives? Do rhinos destroy crops? Are members of different communities involved in poaching rhinos? Such questions can ultimately help better identify key aspects that might act as significant contributors to the extinction crisis — at least locally. Perhaps, income insecurity might be responsible for making community members poach rhinos to make money from the rhino horn trade. Or rhinos raiding farms might be pushing families towards food insecurity. There could be an end number of reasons for sustained conflicts contributing to the extinction crisis. Once those are however identified, economic practices could be engineered to not only decrease poaching and conflict with rhinos, but rather yield profit from the very existence of such animals right next to settlements of these communities.
Consider ecotourism, for example. As an industry that relies on nature to survive, ecotourism was valued at $181.1 billion in 2019 with an expectation to reach $333.8 billion by 2027. Now compare this number to the $80 billion needed annually to conserve nature worldwide, and the $4 billion the GEF currently holds from its latest four-year replenishment cycle. Contrary to most people’s common-sense perception, it might clearly seem that ecotourism, if decentralized from a few corporate hands, and reengineered to make community members as proprietors, can be one of several ways conservation bonds might be refinanced to preserve habitats and wildlife.
Therefore, in case of our rhino bond for instance, community members can be aided by helping them designate their dwellings as homestays for eco-tourists, study abroad students, or researchers willing to experience wildlife and different cultures. Doing this, along with making sure that the industry remains free of corporate monopoly, might generate a revenue stream that helps communities associate rhino conservation with food and financial security. Young people from communities can be retrained as wildlife tourism guides, while those interested in the arts can be supported and motivated to create fashionable clothing and jewelry surrounding rhino conservation and sustainability related themes.
On a global scale, the larger the number of communities that get involved, the more the number of individual species and conservation goals that reap benefit. The key here is decentralization. Rather than letting larger corporates enter such industries, it is more important to help communities take charge and be industry leaders taking conservation in their own hands. Therefore, while community centered initiatives like the ones described might need significant capital investments in the short run, they might end up being more sustainable in promising conservation, investment returns, and species recovery in the longer run.
Programs like the Rhino Impact Bond are too important to fail. Any glitch in their code might send a repulsive signal amongst investors that survives in the market for years. It is of utmost importance, therefore, that major kinks within their funding mechanism are straightened out before any release. Getting a large multilateral global donor to initially fund the Rhino Impact Bond in two reserves might work for five years. However, funding another debt instrument for fifty years to conserve the world’s remaining 27,000 rhinos will require empowering communities through sustainable business ideas. Without such collaborations, we might not have a promising chance.
References
McCarthy, D. P. (2012, November 16). Financial Costs of Meeting Global Biodiversity Conservation Targets: Current Spending and Unmet Needs. Science. https://science.sciencemag.org/content/338/6109/946.abstract
Lindsey, P. A., Petracca, L. S., Funston, P. J., & Bauer, H. (2017, May 1). The performance of African protected areas for lions and their prey. ScienceDirect. https://www.sciencedirect.com/science/article/abs/pii/S0006320716305481
Rhino Impact Bonds An Innovative Financing Mechanism for Site-Based. (2021, June 19). Global Environment Facility. https://www.thegef.org/project/rhino-impact-bonds-innovative-financing-mechanism-site-based-rhinoceros-conservation
Srivastava, S. (2019, July 18). New “rhino bonds” to allow investors to help with wildlife conservation. CNBC. https://www.cnbc.com/2019/07/18/what-is-a-rhino-bond-here-is-all-you-need-to-know.html
Sguazzin, A. (2021, March 24). World’s First Wildlife Bond to Track Rhino Numbers in Africa. BloombergQuint. https://www.bloombergquint.com/business/world-s-first-wildlife-bond-to-track-rhino-populations-in-africa
B. (2019, July 19). Rhinos come to bond market, other species may follow. The Economic Times. https://economictimes.indiatimes.com/markets/bonds/rhinos-come-to-bond-market-other-species-may-follow/articleshow/70287666.cms
Green, N. (2020, December 3). Rhino bond a milestone in ethical investing. Unbiased.Co.Uk. https://www.unbiased.co.uk/news/financial-adviser/rhino-bond-a-milestone-in-ethical-investing
Aglionby, J. (2019, July 16). ‘Rhino bond’ breaks new ground in conservation finance. Financial Times. https://www.ft.com/content/2f8bf9e6-a790-11e9-984c-fac8325aaa04
Earth.Org. (2021, March 25). The World’s First Wildlife Bond Will Launch This Year, Focusing on Rhinos. Earth.Org — Past | Present | Future. https://earth.org/worlds-first-wildlife-bond-will-launch-this-year-for-black-rhinos/
