From ecosystems to species, biodiversity is the variety and variability of life on Earth. For development to be sustainable, conserving and restoring biodiversity is not only essential but it’s also vital for the fabric of life.
However, Africa’s rich biodiversity is facing imminent risk. And climate change induced issues such as desertification, wildfires, severe storms and floods are exacerbating the continent’s exposure to biodiversity loss.
Take black rhinos. At one point, the population of black rhinos may have been as high as 850,000. But the numbers have dropped dramatically from an estimated 65,000 in 1970 to about 2,600 now, according to the World Bank. This is partly due to habitat loss and excessive poaching.
Rhinos play a crucial role in shaping entire ecosystems in which other species depend. But gaps in conservation financing has limited the activities of programs that aim to protect endangered rhinos and grow their populations.
Although there’s a growing awareness of the need to enhance biodiversity by protecting wildlife as the majority of investment in nature is derived from governments with little involvement from the private sector.
On average, biodiversity loss is costing the global economy 10 percent of its output every year. But in order to tackle the world’s growing biodiversity crisis, there needs to be an increase in nature-based funding.
Last year, UNEP released a report on the state of finance for nature and found that the global annual spending to protect and restore nature needs to triple to roughly $350 billion by 2030. And by 2050, global yearly spending needs to increase to $536 billion.
To achieve these loft goals, a shift in mindset from governments and the private sector is needed in order to safeguard environmental systems.
Enter ‘rhino bonds’.
In recent times, new and innovative financing mechanisms designed to tackle the issue of biodiversity loss are emerging.
In March, the World Bank issued the world’s first Wildlife Conservation Bond raising $150 million to fund efforts to increase the black rhino population – an endangered species – in South Africa.
This innovative outcome-based financial mechanism differs from a conventional bond as it measures the increase in black rhino populations and will pay returns depending on the rate of growth in black rhino populations in two South African reserves.
The Rhino bond harnesses investment from capital markets to directly support endangered species and conservation efforts. Further, the bond is the first of its kind as it not only has financial outcomes but also conservation ones – in this case, the increase in black rhino populations.
While development finance continues to play a crucial role in tackling Africa’s growing biodiversity issues, there’s an increased need to tap into alternative modes of financing.
Capital markets offer a way to respond to Africa’s climate-induced biodiversity issues by linking capital markets to biodiversity conservation through climate financing mechanisms such as rhino bonds.
This is particularly important given Africa’s mounting climate-induced challenges.