Impact Bonds and the Possibilities of Regenerative Finance

In 2018, I began working with the Deshkan Ziibiing (pronounced desh-kan-zee-bing) or the Chippewas of the Thames First Nation in Southwestern Ontario (Canada). With Carolinian Canada and other partners, including Verge Capital, Thames Talbot Land Trust and 3M, we created a financial instrument to support habitat restoration and biodiversity conservation in a biodiversity hotspot called the Carolinian zone. The work also supported Indigenous resurgence, a movement to recognize the land rights of Indigenous communities and the validity of their knowledge systems.

The financial instrument we created is called the Deshkan Ziibi Conservation Impact Bond, and in many ways, it has been wildly successful. For example, it helped to:

• Unlock new funding for conservation and Indigenous resurgence.

• Restore 160 hectares of habitat, including planting over 39,000 native plants.

• Transform conservation practices in the Carolinian Zone to include more Indigenous perspectives.

• Build trust and collaboration between local Indigenous and non-Indigenous partners.

However, the experience also confirmed our doubts about the current financial system. We now believe, more than ever, that to protect land and honour Indigenous rights at a large scale, we require significant changes in how society attributes and generates value. We need a fundamental shift in how we value all forms of life, moving from an extractive to a regenerative lens.

In this article, I will explain the Deshkan Ziibi Conservation Impact Bond and how it works. It is a useful model for investors, corporations, donors, and governments wanting to ensure their philanthropic and grant spending has a real impact. It is also a helpful tool for conservation organizations and Indigenous communities aiming to attract additional funding.

Yet, as with any form of impact investing, the bond’s potential impact under the current financial system will eventually be capped. That is because our financial system fails to adequately value biodiversity or the building of reciprocal relationships between Indigenous and non-Indigenous peoples.

What is an Impact Bond?

A bond is a financial instrument in which people lend money to a company, government, or other entity in exchange for a guaranteed rate of return.

An impact bond is similar, but the returns include some real impact. That impact can include things like boosting biodiversity, sequestering carbon, or improving health. In the case of an impact bond, quantifiable outcomes are usually agreed upon in advance.

Impact bonds require many different groups to work together, each playing a distinct role. These stakeholders include:

• Investors: These funders provide the initial capital for the project and expect a financial return if the project is successful (i.e., the agreed upon “outcomes” are met).

• Outcome Payers: These entities agree to repay investors once the project achieves its intended outcomes. Payers can include governments, foundations, individual donors, or corporations.

• Service Providers: These organizations receive the initial investment and are responsible for implementing the project and achieving the desired outcomes.

• Independent Evaluators: These individuals verify the achievement of agreed-upon outcomes, ensuring transparency and accountability.

Impact bonds are also known as pay-for-performance products. When the “outcomes” are achieved, investors are repaid their capital plus interest by outcome payers. However, if the outcomes are not met, the investor will not receive any interest on their initial capital and may forgo repayment of some or all of the principle. Investors take the financial risk in exchange for potential financial returns.

Outcome payers are only interested in the project’s outcomes. They agree to pay interest on the project’s cost, but in exchange, they only pay if their intended outcome is achieved.

Case Study: The Deshkan Ziibi Conservation Impact Bond (DZCIB)

Our research focused on a particular impact bond—the Deshkan Ziibi Conservation Impact Bond (DZCIB). The project was created using Community-Based Participatory Research, whereby my research team and I worked closely with Deshkan Ziibiing, also known as the Chippewas of the Thames First Nation, and Carolinian Canada. With the support of other partners, we created a bond to support habitat restoration and biodiversity conservation in a biodiversity hotspot—the Carolinian zone of Southwestern Ontario, Canada.

This bond pursued the Mi’kmaw principles of Two-Eyed Seeing/Etuaptmumk. Proposed by Mi’kmaw Elder Albert Marshall, Two-Eyed Seeing/Etuaptmumk advocates for a synergistic blend of two perspectives or ‘eyes:’ one Indigenous and one Western, each embedded in their ways of knowing. The Two-Eyed Seeing approach was critical to the bond’s ability to achieve its conservation goals. 80% of the planet’s remaining biodiversity is located on Indigenous lands, indicating that Indigenous land management practices have much to offer conservation efforts.

Historically, colonial governments globally have removed Indigenous communities from their land and stripped them of their culture. Centring Indigenous people and their knowledges in conservation not only supports cultural restoration, but also encourages reconnection to land and land stewardship. No regeneration can be achieved with reconciliation with Indigenous peoples.

How the Deshkan Ziibi Conservation Bond Worked

The Deshkan Ziibi Conservation Bond followed the four traditional steps of an Impact Bond:

1. Investor provided upfront capital: Verge Capital, an impact investing company, provided a $300,000 grant as seed funding for the project.

2. Funds were used for habitat restoration: The funds were allocated to partners like the Thames Talbot Land Trust and Deshkan Ziibiing to carry out restoration activities. Activities included planting native trees and plants, restoring wetlands, and managing invasive species.

3. Outcome payer repaid the investor: 3M, a technology company, agreed to act as the first outcome payer. They committed to repay Verge Capital their initial investment plus a 3-5% return (the exact amount would be determined primarily by the average rate of return on the bond market). Other outcome payers eventually joined, including a non-profit and the government.

4. Impact was assessed: The project’s outcomes were verified using metrics that reflect Indigenous and Western perspectives on land conservation.

Assessing Outcomes of the Deshkan Ziibi Conservation Bond

DCZIB outcomes were assessed across five metrics. In this case, the word “metric” is not a single quantitative measure. Rather, a metric describes a collection of related measures, each looking at relationships between Indigenous and non-Indigenous peoples and relationships between people and the land. The five metrics were:

• Connecting Healthy Habitats: This metric assessed the project’s direct environmental impact. For example, it measured how many hectares of habitat were improved and how many native plants were planted.

• Connecting Knowledge Through Circling and Learning: This metric focused on how successfully the project integrated traditional ecological knowledge with Western conservation science.

• Connecting Opportunities: This metric assessed the socio-economic benefits created by the project, particularly for Indigenous communities. That included job creation, economic development, and Indigenous peoples’ participation in and benefits from conservation efforts.

• Connecting Our Hearts and Minds: This metric captured the project’s impact on people’s attitudes and perceptions. For instance, it investigated whether participants had a deeper understanding and appreciation for the interconnectedness of human and non-human communities and a sense of responsibility for the well-being of the land.

• Connecting Our Bodies: This metric explored the project’s impact on human health and well-being. That included assessing opportunities for people to spend time in nature, which has physical and mental health benefits.

To learn more about the Deshkan Ziiibi Conservation Impact bond, you can look at the academic paper, report, and story map.

Regenerative Finance: The Path Forward

While the DZCIB has had very positive local impacts, impact bonds alone cannot address the fundamental problems in the current financial system, which is not set up to enable positive impact at scale.

The financial system has an extractive and exploitative relationship with land. Land—including plants, animals, water, and minerals—is seen as a natural resource to be exploited for people’s short-term financial gain. Pursuing only profit results in practices like deforestation, mining, and industrial agriculture, which damage ecosystems and threaten biodiversity.

In addition to innovative financial instruments, like the DZCIB, we also need changes to the global financial system. We need policy that requires us to pay the financial cost of the harm caused by pollution and climate change. We need policy that gives intentional financial value to biodiversity, ecosystem services, and Indigenous cultural restoration. Only when the larger financial system begins to value these things will we move more seamlessly toward them.

More About Sustainable Finance at Ivey

I lead Ivey’s Sustainable Finance Lab, where we use different forms of regenerative capital to protect biodiversity and pursue truth and reconciliation with Indigenous communities. We are currently developing a region-wide impact bond, like the DZCIB. We are also investigating the role capital markets can play in economic reconciliation with First Nations and developing new financial products targeting regenerative agriculture.

If you want to know more about the Ivey Sustainable Finance Lab, visit our website or contact me: Dr. Diane-Laure Arjaliès (darjalies@ivey.ca).