Michael Bennett
New financial structures connecting capital markets with conservation have big potential to close the global funding gap for biodiversity, investors and environmental experts shared during the UN Biodiversity Conference in Montreal.
“Historically in our economy and globally, we have done a tremendous job of being able to value the concept of extraction or exploitation of natural resources. We are just now starting to get to a place where we are able to more appropriately and accurately value the concept of conservation, and environmental health and environmental stewardship,” said Stephen Liberatore, Head of ESG and Impact Global Fixed Income at the pension fund Nuveen.
Speaking at a Global Environment Facility-hosted event on capital markets, Liberatore described his organization’s path to investing in biodiversity-focused products such as the Wildlife Conservation Bond, the Seychelles’ sovereign blue bond, and the Barbados’ debt-for-nature swap.
Stephen Liberatore and Kevin Bender
“We look at opportunities from a return perspective and also to see what kind of impact is being made,” he said. “When we look for transactions, we are looking for the involvement of organizations like the World Bank, the GEF, or TNC because they have a lot of expertise and a lot of credibility on this space.”
Nuveen was the lead investor in the Wildlife Conservation Bond, known as the “rhino bond,” which was issued by the World Bank in March 2022 with a future payout funded by the GEF. The first-of-its-kind bond links investors’ returns with the survival of an endangered species – the black rhino – while also supporting conservation activities at two nature reserves in South Africa.
“The rhino bond was a very interesting and important structure for us. We think it is a model that we can replicate going forward,” said Michael Bennett, Head of Market Solutions and Structured Finance at the World Bank Treasury.
Bennett stressed that while biodiversity-related bonds are new, they have been carefully designed to attract and meet the risk-return profile needs of institutional investors. The five-year, $150 million bond was “not a philanthropic exercise,” he underlined.
GEF Senior Blended Finance Specialist Avril Benchimol said the rhino bond launch was an important step toward building a biodiversity market that establishes large investors as a stable source of funding for conservation activities.
“The interesting part of this whole transaction was that the GEF as a donor, and an issuer that is AAA rated like the World Bank, created a structured bond that can attract the money of the big institutional investors for conservation,” she said.
Other innovative financial solutions that are gathering steam are sovereign debt-for-nature swaps, where debt restructuring at better financial terms can help governments reduce their borrowing costs in capital markets and in turn invest part of their credit savings in environmental initiatives such as marine conservation projects.
Kevin Bender, Director of Greening Sovereign Debt at The Nature Conservancy, shared lessons from sovereign debt conversions his organizations has worked on, including in Barbados and Belize. He stressed the important value of such transactions, which result in lower public debt levels in addition to higher biodiversity spending.
“We are creating savings from the debt conversion and putting that into biodiversity,” Bender explained. “Our goal is to make these [transactions] commonplace. The structuring we are doing is not that complicated, we are just piecing it together in an innovative way and putting it into conservation. As we make these products more simple and more commonplace, that market will grow exponentially.”
The GEF’s Benchimol noted the significance of rising investor interest in conservation-related financial products at a time concerns are running high about how to finance urgent global biodiversity needs. “I think what’s important here is that the financial innovation is already happening and attracting private sector investment from big institutional investors.”
All photos credited to Olivier Besson/GEF
