Some would argue that few areas within the vast realm of investing are as dull as that of fixed income. Admittedly, coupon-clipping and duration-calculating exercises are not all that exciting. Bond managers’ obsession with risk in all its shapes, from interest rate to credit and default, smells of fear and is hardly appealing either. Not surprisingly, most aspiring financial cubs, fresh out of business school, flock starry-eyed around equities and their infinite upside of opportunities instead.
In recent years, however, fixed income has become so much more colourful, wouldn’t you agree? All thanks to the tidal wave of sustainability sweeping over every corner of the investment universe, including the greyest ones. First came the green bonds, heralding a fresh new take on impact investing. Emanating alluring emerald shimmer, they quickly established themselves as the instrument of choice for financing bold green ventures. By now, any self-respecting environmentalists should be able to discuss with ease things like use of proceeds and other covenants.
Given the massive success of green bonds (and loans), it was just a matter of time before other colours and imaginative names followed suit. There came the rather intuitively named blue bonds, designed to help combat ocean pollution, and the more vaguely coloured sustainability bonds, SDG bonds, ESG bonds. Then the somewhat controversial transition bonds, aka brown bonds. And a multitude of sustainability-linked versions, swapping the single use-of-proceeds for carefully chosen KPIs. Then social bonds became all the rage with the rise of COVID… It’s truly a colourful world these days!
For a week now, my personalised news stream has been simply flooded with images of cute rhinos. No doubt yours, too, in case you’ve ever expressed interest in the brave new world of sustainable bonds online. It’s not a scam, I assure you. On 23 March, the World Bank issued the world’s first Wildlife Conservation Bond (WCB) or the ‘Rhino Bond’, raising USD 150 million to help increase the endangered black rhino population in South Africa.
The ‘Rhino Bond’ is a real thing. It includes a potential performance payment from the Global Environment Facility (GEF), which will contribute to protecting and increasing black rhino populations in two South African reservations, the Addo Elephant National Park (AENP) and the Great Fish River Nature Reserve (GFRNR).
“The Rhino Bond is a ground-breaking approach to enabling private sector investment in global public goods — in this case, biodiversity conservation, a key global development challenge,” says World Bank Group President David Malpass. “The pay-for-success financial structure protects an endangered species and strengthens South Africa’s conservation efforts by leveraging the World Bank’s infrastructure and track record in capital markets. Importantly, it can be replicated and scaled to channel more private capital for other conservation and climate actions and development objectives around the world.”
It seems it is time to reconsider our view of fixed income as boring. These days, there is hardly a lack of colour, diversity, or, indeed, biodiversity in this space.
 The Global Environment Facility is the largest multilateral trust fund dedicated to investing in nature. Its support for the Wildlife Conservation Bond is part of its growing blended finance portfolio. Another example is the USD 5 million concessional loan provided by the GEF in 2018 to de-risk the Seychelles’ sovereign blue bond, which was issued in partnership with the World Bank to support sustainable marine and fisheries projects.