FirstRand issues ecological restoration bond in global first

FirstRand sold a R2.5 billion ($149 million) bond that rewards investors based on improvements in a Cape Town water-catchment area, measured by the removal of invasive vegetation.

The bond is the first issued by a commercial bank that ties investor returns to ecological restoration outcomes, the South African-based lender said in a statement on Wednesday. It was arranged by Rand Merchant Bank, a unit of FirstRand, and backed by International Finance Corp. The Nature Conservancy will implement the vegetation removal program.

FirstRand’s issuance is the latest attempt to create new asset classes to preserve biodiversity and fund conservation. In 2021, the World Bank sold a bond linking returns to growth in endangered black rhino populations in two South African nature reserves.

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The water-catchment bond comes as South Africa’s fast-growing cities increasingly struggle to meet rising demand. In the Western Cape province, where Cape Town is based, catchment areas are in places overrun by water-hungry invasive plant species such as wattle and blue gum trees. Their removal is expected to boost dam inflows for the city’s 4.8 million residents who almost ran out of water in 2018, while helping protect the Cape Floral Region, home to about 9,000 indigenous plant species.

Securing funding for the invasive vegetation clearance program for the next five years is aimed at “unlocking additional water yield at a fraction of the cost of traditional infrastructure,” said Monica Jaglal, co-head of credit at Johannesburg-based Aluwani Capital Partners, which bought R350 million of the bond. “We are delivering measurable environmental and social impact.”

International Finance Corp subscribed for R1.6 billion of the bond, while the UK’s FSD Africa Investments bought R234 million. Rand Merchant Bank didn’t provide further details on how the bond will work. The bank said it expects the deal to be the first in a series, creating a template to “finance restoration of priority catchments across South Africa.”

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The bond sale will see $8.8 million directed to the Nature Conservancy, which, through the Greater Cape Town Water Fund, seeks to clear invasive vegetation from 54 300 hectares (243 775 acres) of land. So far, about three-quarters of that goal has been met.

The program “could deliver an estimated two months of Cape Town’s annual water needs at one-tenth of the cost of alternatives,” the Nature Conservancy said in a statement.

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