A major topic at this year’s global climate summit has been finding sustainability and conservation funding solutions for developing countries that are already saddled with debt and therefore unable to invest in protecting their natural environments — with debt-for-nature swaps emerging as a promising path to halting biodiversity and ecosystem loss. At COP27, The Nature Conservancy hosted one such panel from the Nature Zone Pavilion — an area set aside for discussions related to the worldwide objective of ending nature loss now and beginning to reverse it by 2030, known as Nature Positive.
From the information presented at “Greening Sovereign Debt: Addressing Dual Crises of Climate and Debt,” debt conversion for conservation appears to be a game changer as far as funding initiatives in the Global South are concerned. However – since investors are motivated in large part by the opportunity to get closer to their net zero commitments – these funding mechanisms also represent a lack of real action to drastically reduce emissions in the Global North. The hard truth is, if the planet is to remain habitable, then world leaders cannot focus solely on preserving nature in the developing world in order to excuse the actions of corporations and more developed nations.
That’s not to say that there isn’t a lot to gain from the conservation funding model. Rather, there is a legitimate and sizable benefit to be had by countries that can take advantage of trading their sovereign debt for conservation funding. Andrew Deutz, the Director of Global Policy, Institutions and Conservation Finance at the Nature Conservancy, opened the discussion with this point: “The world is facing a debt crisis. The world is facing a climate finance crisis. And these two crises need to be solved together.”
While debt-for-nature swaps have been around since the 1980s, Jennifer Morris, CEO of the Nature Conservancy, referred to this year’s climate summit as the implementation COP for the “Holy Grail” of private sector funds that are flooding in for conservation. She also referenced the 60 percent of low-income countries that are in or near debt distress, asking the obvious question — how can they be expected to afford investments in sustainability development?
Part of the answer could lie in $10 billion worth of debt conversions for the countries that have already approached the Nature Conservancy for assistance, which would result in $2 billion for their conservation efforts, according to Morris. Success stories from the organization previously partnering with private capital to fund debt-for-nature swaps in the Seychelles, Barbados and Belize were given as examples of the power of financing sovereign debt relief as a catalyst for conservation. She touted the $230 million that was made available for conservation and sustainability efforts in the three countries following $500 million worth of debt conversions. Additionally, marine conservation commitments that came out of the arrangement amounted to almost 200,0000 square miles (about half a billion square kilometers) being protected.
“We used private capital with these credit enhancements to do that,” Morris explained. “It didn’t require a huge grant from the Germans or the French or the Norwegians. We were able to do that with private money. So that is the genius of this model.”
Likewise, Scott Nathan, CEO of the US International Development Finance Corporation (DFC) said, “This is about bringing private capital, opening up the private markets, innovative solutions, tapping into the depths of the private capital markets to help solve these problems.” He extolled the success of the DFC’s partnership with the Nature Conservancy in applying a debt-for-nature swap to Belize, which resulted in a debt reduction of $180 million for the Central American country while providing money to double its protected marine area, support conservation efforts for the Belize Barrier Reef, implement new mangrove reserves, support biodiversity, protect livelihoods, promote tourism and preserve the fishing industry.
Jean-Paul Adam, the Director of the Climate Change & Natural Resource Management Division for the United Nations Economic Commission for Africa, worked on the debt-for-nature swap for Seychelles. While he mentioned that the debt relief was smaller than they originally wanted, the African nation went ahead with it because it fit their marine conservation plan for eco-tourism and sustainable fishing. Doing so allowed for a trust to be set up which has funded conservation projects since 2016.
When asked by an audience member why the debt needs to be leveraged instead of just forgiven, Adam responded that while that option is being considered at the international level for those that are in the worst debt, he sees supporting developing nations in refinancing as a positive move with practical outcomes.
One big positive to refinancing is that the new loans can come with hurricane and natural disaster clauses that suspend payments for up to two years, according to Juan Pablo Bonilla, Climate Change and Sustainable Development Sector Manager at The Inter-American Development Bank. He also mentioned that refinancing can lead to credit enhancement, which many countries would want to take advantage of in order to accelerate their sustainability programs.
Still — relying on the private market has its pitfalls. While Sonja Gibbs, the Managing Director of Head of Sustainable Finance at the Institute of International Finance, estimated that $800 billion could be available annually for debt conversion, she also conceded that funds depend on favorable market conditions. Naturally, scaling up the model is dependent on the returns seen by the private sector. And with ESG on the chopping block for the coming economic downturn, depending on private investment could be risky business.
Overall, debt-for-nature swaps have the potential to promote conservation funding and sustainability in developing nations while relieving the burden of sovereign debt. This could go a long way toward preserving the natural world in the Global South. But, if we are going to have any hope of slowing the crisis, the Global North will have to do a lot more than just throw money at the climate crisis.
Image credit: John Salzarulo via Unsplash
Riya Anne Polcastro is an author, photographer and adventurer based out of the Pacific Northwest. She enjoys writing just about anything, from gritty fiction to business and environmental issues. She is especially interested in how sustainability can be harnessed to encourage economic and environmental equity between the Global South and North. One day she hopes to travel the world with nothing but a backpack and her trusty laptop.