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Countries Seek to Pay Down Billions in Debt with Conservation Swaps

December 1, 2022
Reading time: 3 minutes

Andy Blackledge:Flickr

Andy Blackledge:Flickr

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Successful debt-for-nature swaps in the Seychelles, Belize, and Barbados have revived interest in a financing model that offers a three-way win: for debt-burdened countries seeking relief, investors chasing net-zero goals, and for the Earth’s declining biodiversity, which must be preserved to meet climate targets.

“There’s now a big push to get nature into sovereign debt markets,” said Simon Zadek, executive director at NatureFinance, which advises governments on debt-for-nature swaps and other types of climate-focused finance.

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“The tragedy of debt distress offers a real opportunity.” 

In debt-for-nature deals, developing countries can relieve some of the pressure of paying back international loans through nature conservation agreements, enabling them to refinance debt payments or score better interest and payment terms and free up savings for conservation efforts, explains Euronews Green.

Roughly 140 debt-for-nature swaps worth US$3.7 billion have been made in the past 35 years, with an average value of $26.6 million. Only three have stuck, but a rise in the swap value and number of proposals indicates such arrangements may be moving towards the mainstream.

Several countries are working with investors and have already taken on debt-for-nature swaps. A 2015 deal in the Seychelles created the world’s first blue bond and resulted in protections against overfishing and development for marine areas the size of Germany. It also brought more favourable terms to $22 million of the Seychelles’ debt. Last year, Belize arranged to swap $553 million in exchange for protecting the world’s second-largest coral reef. The deal reduced the country’s debt by more than 10% of GDP, according to government estimates.

Other countries are in negotiations: Cape Verde, an island country in the central Atlantic Ocean, is nearing a deal worth around $200 million, and Ecuador is holding talks with banks and a non-profit to leverage the wealth of biodiversity on the Galapagos islands. With sovereign bonds currently trading at “distressed” levels due to past defaults, Ecuador could refinance about $800 million of its debt to free up funds for conservation arrangements, Reuters says. It would be the largest swap to date, if finalized, but other big agreements are in the works—like in Sri Lanka, where $1 billion in debt is in play.

Four other African countries are considering debt-for-nature deals, but have not yet announced them publicly, said Jean-Paul Adam, a former Seychelles official who now works for the United Nations Economic Commission for Africa (UNECA).

Bondholders may lose money or see delayed repayment if a country defaults, but debt-for-nature swaps still present an opportunity for investors hoping to boost their net-zero and environmental, social, and governance (ESG) credentials. But support from development banks is vital for a deal’s economic viability, and may present a hurdle, as the institutions tend to guard their capital and credit ratings. Swap proponents are calling on major development banks to step up with expanded and standardized support for more agreements.

“That’s the limiting factor that keeps us from just scaling this to trillions of dollars,” said Kevin Bender of The Nature Conservancy, who leads the NGO’s sovereign debt teams and worked on the Belize swap.



in Biodiversity & Habitat, COP Conferences, Finance & Investment, Forests & Deforestation, Oceans, Small Island States

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