Conservation impact bonds (CIBs) are pay-for-success, outcome-based financial structures that can strengthen conservation efforts. They connect key conservation and finance stakeholders, aiming to transfer the risk of funding conservation from governments, communities, businesses, and donors (in developing countries) to impact investors.
The core model is based on bringing together groups that place a monetary value on and are willing to pay for nature-based services with impact investors that provide funds for conservation and nature-based projects. Different models are emerging for repayment to investors, including one in which investors are paid their principal plus a return on investment if outcomes are achieved but no return on investment if the outcomes are not successful. Outcomes are measured using predetermined data that can include social, economic, ecological, and climate change metrics.
These bonds can help both to address biodiversity loss and to support actions to enhance the ability of natural systems to adapt to climate change. Projects with potential adaptation benefits include restoring waterways, restoring watersheds, growing native plants, and implementing nature-smart climate solutions.
Current or potential adaptation-relevant sector applications:
- ecological services and management – forest management (including afforestation and reforestation); wetlands; ecosystem and biodiversity protection, conservation, and enhancement; fire management.
Additional insights:
- This is an emerging instrument, with a prototype for a CIB for healthy landscapes having been launched in Canada in 2020.
- Long-term support for CIBs requires that early projects demonstrate financial viability and the ability to deliver measurable results.
Considerations for using a CIB:
- CIBs are place specific, and structuring the bond can be time-intensive and costly.
- CIBs often require a third party to design and implement the bond as well as to bring together necessary stakeholders.
- Government or development partner support has been a critical element in the launching of early iterations of CIBs. There is uncertainty as to whether some projects funded through the issuance of this kind of bond can generate profit and deliver the returns necessary to attract private sector investors.
- Issuance of a CIB can be an important step in demonstrating whether or not private funders may be willing to finance a certain type of project.
- CIBs need specific targets or goals against which to measure success and issue payment. Determining the additionality of environmental outcomes and the timeframes required for achieving demonstrable impacts poses challenges in measuring success.
Adapted from the following sources:
Lynch, M., & Kanter, M. (2022). Conservation impact bond: An innovative new tool for scaling collaboration and investment for landscape-scale conservation [Briefing note]. Ivey Centre for Building Sustainable Value & Carolinian Canada Coalition. https://www.ivey.uwo.ca/media/3797473/cib-policy-brief-february-2022.pdf
Thompson, B. S. (2023). Impact investing in biodiversity conservation with bonds: An analysis of financial and environmental risk. Business Strategy and the Environment, 32(1), 353–368. https://onlinelibrary.wiley.com/doi/10.1002/bse.3135