UNDP targets ‘tiger ecosystem bond’ to fund conservation activities

Agency looks to sovereigns and MDBs as potential issuers for ground-breaking bond focused on keynote species.

The United Nations Development Programme (UNDP) is in dialogue with several investment banks and governments about the potential to issue a “tiger ecosystem bond”, Responsible Investor can reveal.

The bond would fund conservation activities and generate revenues through – among others – high-integrity carbon and biodiversity credits.

Gaurav Gupta, nature investment adviser at UNDP, explained that the agency is exploring the bond to boost private investments into landscape scale conservation. “Hardly any of the existing financing mechanisms integrate conservation and restoration of ecological processes that take place at large scale,” he said.

In this case, the underlying ecological process is the movement and dispersal of the tiger, so the bond’s purpose would be to protect, restore and sustainably manage natural resources within the entire ecosystem with the tiger as the “keystone” species.

“The bond is not just about tigers,” Gupta said. “It is about protecting and restoring the ecosystem.”

To create the bond, UNDP plans to engage local stakeholders on land use in a selected tiger habitat, looking at protected areas, community managed areas, commercial forestry and agriculture.

From there, it is envisaged that the stakeholders would define a “menu” of business activities to protect and restore nature, while also generating revenues.

“We cost the scenario and understand capital requirements and approach investors who can be public or private,” said Gupta. “High-integrity biodiversity and carbon credits are one of the potential revenue streams, among several others.”

For instance, reducing illegal activities in protected areas generates “quantifiable” carbon or biodiversity gains, which could be sold as credits.

Once the conservation plan and the underlying business activities have been identified and agreed, the financial structuring will be worked out – but Gupta stressed that the decision would ultimately lie with local stakeholders.

Potential issuers

Potential issuers for a bond would include sovereigns, MDBs or a special purpose vehicle. Each landscape would look to raise between $100 million and $250 million depending on the size and intensity of threats to biodiversity in the area.

For a non-sovereign issuance, UNDP has had conversations with and early indication of interest from several investment banks.

“A non-sovereign issue could particularly fit in countries which are overburdened by existing debt,” said Gupta. “But some countries do have a healthy debt-to-GDP ratio and excellent biodiversity conservation capacity and experience, the advantage of which is having lower overhead costs and greater management over the structuring and execution of underlying activities.”

For a potential sovereign issuance, UNDP is at various stages of discussions with governments in several tiger-range countries.

“We are carrying out feasibility analysis, focusing on target landscapes, key performance indicators, business activities and repayment,” said Gupta. “We will get to structuring once the conservation and business feasibility is clear.”

UNDP has also had discussions with several MDBs about issuing the bond.

According to WWF, as of mid-2022 there were 10 countries where wild tigers still roam: Bangladesh, Bhutan, China, India, Indonesia, Malaysia, Myanmar, Nepal, Russia and Thailand. The NGO also lists five historical tiger-range countries: Cambodia, Pakistan, Laos, Pakistan and Vietnam.

Regardless of the issuing entity, Gupta said the impact of the bond would be reported regularly across three broad baskets of indicators on biodiversity, climate and people.

“Different indicators will be reported at different frequencies as there are cost implications so a balance has to be maintained,” he added.

The indicators will be finalised in consultation with different country stakeholders as well as investors.

With the plan for a majority of the proceeds to be invested in the target landscapes, the bond would differ from the World Bank’s rhino bond. In that deal, which was issued in March 2022, proceeds were used for sustainable development activities and only the coupon payments were invested for Rhino conservation.

With limited precedence of debt instruments where proceeds of sale are used for the protection and restoration of nature, UNDP is looking to de-risk any tiger bond by bringing in concessional capital and engaging with MDBs.

It has been speaking to investment banks for at least two years, and RI understands that some have indicated a willingness to structure such an instrument, depending on the viability of the business case and the amount of concessional capital.