Background & Aims: Kunming-Montreal Global Biodiversity Framework (GBF) proposes the need to close the 700 billion USD biodiversity financing gap and phase down harmful subsidies of 500 billion USD per year. However, achieving this goal requires mobilizing 200 billion USD yearly from new and additional sources including leveraging private finance, promoting blended finance, incentivizing private investment, and encouraging financial innovation such as green bonds or impact funds. We address an innovative combination of green bond and impact fund, rhino bond, to which Global Environment Facility (GEF) provides “conditional grants” which incentivize investors up to 13.76 million USD and link to actual performance of rhino conservation in two protected areas in South Africa.

Methods: We use fact sheets of green bond markets in China and worldwide to compare classifications of biodiversity- themed green bond projects in the 2021 International Capital Markets Association’s Green Bond Principles and China’s Green Bond Supported Project Catalogue. Three models of green bond issuance are compared: (1) Pure market issuance; (2) Market issuance supported by public finance; (3) Market issuance supported by grants (rhino bond). We analyze the benefits and drawbacks for each model, then compare and place into application scenarios.

Progress & Conclusion: We find rhino bonds issued by South Africa in 2022 create an innovative combination of “grant + market” from the perspectives of bond background, structural design, risk sharing and funding mode. This combination is characterized by five distinguishing features: (1) attracting impact funds; (2) optimizing risk sharing; (3) increasing repayment sources; (4) assessing performance independently; and (5) strengthening information disclosure. Altogether these traits make the rhino bond successful in attracting three types of investors with differentiated risk and return patterns: (1) GEF grants; (2) Financial return preferred investors; (3) Social impact preferred investors, with a stacked capital structure ideally formed.

Recommendation: We suggest initiating proposals for the Kunming Biodiversity Fund to innovate blended financing through experience drawn from rhino bonds, and for biodiversity-themed green bonds in China to be promoted. Further, the policy of Green Bond Supported Project Catalogue should be reformed as follows. First, explicitly recognize biodiversity as a separate project category and publish criteria for the identification of biodiversity-themed green bonds and the issuance process. Second, provide a more specific list of biodiversity-friendly projects in comparison to traditional green bond projects. Third, classify biodiversity conservation and sustainable use in different categories and encourage the packaging of non-profitable conservation projects for those which provide incentives and have profitable biodiversity use. Fourth, under the “conservation” category, refine the provisions for Wildlife Conservation Bonds (WCBs) to provide “Biodiversity Credit” for companies that provide grants. Lastly, introduce third-party organizations to assess the impact of projects on biodiversity and enhance information disclosure as a necessary means to boost market confidence.