Debt-for-nature swaps have become more common among nations in attempts to boost conservation efforts and refinancing climate.
The concept of debt-for-nature swaps is for creditors to forgive governmental debt in return for their commitment to sustainable and green initiatives, allowing for indebted countries to ease their financial burden whilst furthering climate goals. Financial
burdens and debt can hinder developing countries’ ability to meet global climate commitments; debt-for-nature offers a solution against environmental degradation.
In the last few years, debt-for-nature swaps have seen a resurgence, and in exchange for debt relief, governments are reinvesting in decarbonisation, biodiversity, and climate resilient infrastructure:
- In 2018, Seychelles made a debt-for-nature swap for a
$15 million blue bond.
- In 2021, The Nature Conservancy
reduced Belize’s debt by 12% of its GDP, unlocking $180 million for sustainable conservation, promising to protect 30% of its maritime territory.
- In 2022, the Barbadian government
converted $150 million in debt to conserve 30% of its maritime territory in a debt-for-nature deal with The Nature Conservancy and Inter-American Development Bank.
- In 2023, Gabon
announced a $500 million debt swap to fund ocean conservation projects through The Nature Conservancy and the US Development Finance Corporation.
- In October 2024, El Salvador announced a $1 billion debt-for-nature swap for river conservation.
- In November 2024,
the Bahamas signed a $300 million debt-for-nature loan deal with Standard Chartered, focusing on marine conservation projects in association with The Nature Conservancy and Inter-American Development Bank.
- In December 2024, Ecuador
announced debt conversion to protect and conserve the Amazon rainforest and a marine protected area along the Pacific coast, following a 2023 deal to
protect the Galapagos islands through the sale of a blue bond.
There are multiple parties facilitating the debt exchange, including the creditor country, a non-governmental organisation, and a commercial bank, additionally further developmental banks, insurance companies, and private financial institutions may be involved
to support the initiative.
Conservation International, WWF, and the Nature Conservancy have brokered multiple debt-for-nature swaps since the 80s, transferring the debt title to the debtor and enacting the conservation initiative. Other forms of debt-for-nature swaps are bilateral
swaps between governments, or multilateral debt-for-nature swaps exchanged between more than two governments.
According to
The International Stock Exchange (TISE), the concept of debt-for-nature swaps was developed by the WWF’s Thomas Lovejoy in an article published in
The New York Times in 1982, who recognised that the countries that are burdened from foreign debt possess much of the world’s biodiversity. Upon this observation, Lovejoy suggested that indebted developing countries can relieve their financial strain
in exchange for nature conservation investments and environmental protection.
Pros and cons
Do debt-for-nature swaps actually make a difference? In mitigating the climate crisis or in supporting developing nations in paying off their debt?
Experts debate the impact of debt-for-nature swaps, some believing that the strategy opens up countries to reach sustainable development
goals and climate targets, others stating that the initiatives are not large enough to make a difference.
According to 2024 research from the
International Institute for Environment and Development (IIED) debt swaps could free up to $100 billion of debt to climate financing.
The research detailed that climate financing is often provided as loans to developing countries, entrenching them further in debt as they struggle to meet climate goals. If debt-for-nature swaps are more widely enacted, it will ease off the financial strain
on struggling economies. By instating insurance to cover debt repayments in case of disasters, and providing debt-for-nature swaps as layered solutions depending on the debtor, significant capital can be freed up for climate action where it is desperately
needed.
Debt-for-nature swaps offer developing countries an option to relieve debt and meet climate goals and can protect natural resources in times of crisis. However, just debt swaps are not enough to ensure that a just transition is actualised. The magnitude
of debt conversions need to be at a grander scale to meet climate targets, energy goals, and mitigate the climate crisis. The steps taken in the last few years by Ecuador and El Salvador provide hope for the future of climate financing.