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Investors will soon be able to buy bonds that aim to increase the population of the endangered black rhino, and reward investors only when the numbers of these animals rise.
The $50 million Rhino Impact Bonds (RIB) will be the world's first financial instrument working toward the conservation of a species at the risk of extinction.
CNBC takes a look at the concept behind an RIB.
Black rhino numbers have fallen from 65,000 in the 1970s to about 5,500 presently. The species is said to be extremely vulnerable to extinction in the wild. According to the Zoological Society of London (ZSL), the most critical threat to rhino populations is poaching for the illegal trade in rhino horn products.
Lack of available funding has created barriers to successful attempts of rhino conservation.
"The reality is that biodiversity is in crisis and there just isn't enough funding to tackle the issue," Dominic Jermey, the director general of the ZSL, told CNBC via email Thursday.
"Conservationists are battling to fund basic biological management activities, let alone fund critically needed interventions in response to the illegal wildlife trade being perpetrated by criminal syndicates."
What is an RIB?
It's a $50 million bond (a fixed-income investment instrument) with a five-year term and is aimed at growing the numbers of African black rhinos across five sites in Kenya and South Africa. It covers a total of 700 black rhinos that form about 12% of the world's entire black rhino population.
"The Rhino Impact Bond (RIB) is the world's first financial instrument for species conservation, transferring the risk of funding conservation from donors to impact investors by linking conservation performance to financial performance," according to Conservation Capital, the company arranging the bond offer.
The bond, expected to launch in the first quarter of 2020, looks to boost the black rhino population by 10% globally.
How will the bond work?
The $50 million bond is based on an "outcome payments" model — a concept where investors receive financial returns only on the successful and measurable completion of the objective.
Investors will pay an upfront cost for buying the bond and they will be paid back their capital and a coupon if the population of African black rhinos increases in five years. The yield on the bond will be subject to the growth of the rhino population.
"On completion of the five-year term, an independent evaluator verifies whether the RIB target has been achieved: the performance relative to the RIB target determines the investors' return," according to a statement from Conservation Capital.
More impact bonds?
While the risk for an unconventional bond like this is expecting traditional investors to pay upfront without any precedent for a return, the impact investing nature of this bond sale could lead to similar offerings in the near future.
Both the ZSL and the Conservation Capital view this as a "precedent-setting model" for future projects, especially as the list of endangered species continues to grow.
"The rhino impact bond model offers a huge opportunity to open up conservation funding and to share the financial risk of restoring biodiversity. It enables conservation charities, like ZSL, to protect more wildlife and delivers value for money for traditional donors," ZSL's Jermey said.
The impact bond is supported by banks such as Credit Suisse and UBS.