- Debt-for-nature swaps are financial mechanisms that allow countries to reduce their debt burdens in exchange for committing to environmental conservation: Ecuador’s marine conservation program benefited greatly from this kind of agreement recently.
- These are powerful tools, but to fully unlock their potential, we must rethink their structure and governance, a new op-ed argues. A more inclusive, transparent, and robust framework is needed—one built on the principles of Global Public Investment, which places equity and shared responsibility at the heart of climate and biodiversity finance.
- “Let’s turn the potential of debt-for-nature swaps into a powerful force for change, unleashing the transformative power of finance to build a sustainable and just future for all,” the authors write.
- This article is a commentary. The views expressed are those of the authors, not necessarily Mongabay.
As we’ve watched the biodiversity COP in Colombia and then the climate COP negotiations in recent weeks, the urgency of addressing the twin crises of climate change and biodiversity loss has never been clearer. The need for bold action is undeniable, and the solutions we implement must be just as transformative.
One area that holds incredible potential is debt-for-nature swaps — financial mechanisms that allow countries to reduce their debt burdens in exchange for commitments to environmental conservation. However, to fully unlock the transformative power of these swaps, we must rethink their structure and governance. A more inclusive, transparent, and robust framework is needed — one built on the principles of Global Public Investment (GPI), which places equity and shared responsibility at the heart of climate and biodiversity finance.
Untapped potential of debt-for-nature swaps
Debt-for-nature swaps have long been celebrated for their innovative approach to addressing two major global challenges: crippling national debt and the urgent need for environmental conservation. The premise is simple: countries facing unsustainable debt levels agree to preserve their natural ecosystems in exchange for debt reductions. On the surface, this seems like a win-win.
However, there are important lessons to be learned from the practical application of debt-for-nature swaps. Ecuador’s restructuring of $1.628 billion of external debt – the so-called Galapagos debt swap – was designed to support marine conservation, but problems in its governance arrangements have harmed its effectiveness.
The Galapagos Life Fund, established to manage conservation efforts, placed significant decision-making power in the hands of international actors, which limited the active involvement of local communities and national stakeholders. Future debt swaps should better align with national priorities and ensure more inclusive governance and local ownership of conservation projects – this will strengthen their long-term impact. The Inter American Development Bank (IDB)’s on-going MICI consultation exploring perceived governance flaws of the Galapagos swap underscores these challenges.
Recurring challenges around the transparency and accountability of these financial instruments are not unique to Ecuador. The Belize case also illustrates that these swaps require careful design and a commitment to ensuring local and national stakeholders are at the table. By focusing on inclusive, transparent governance, we can ensure that these mechanisms not only address debt but also contribute to sustainable, long-term conservation and development goals.
Global Public Investment: Path to reform
The solution lies in embedding GPI principles into debt-for-nature swaps. GPI calls for a shift from the traditional donor-recipient model to a framework where all nations — regardless of their economic status — contribute to shared goals. It prioritizes inclusive decision-making, transparency, and accountability, ensuring that financial resources are distributed equitably and used effectively.
At the core of GPI are three guiding principles:
- All Benefit: The solutions we implement must yield tangible benefits for all countries and communities involved. Debt-for-nature swaps should create shared value, where every participant—whether developed or developing—reaps rewards.
- All Contribute: Every nation should contribute based on its capacity, ensuring that countries with the most resources play an active role in addressing global challenges, while those most impacted by climate change receive the necessary support.
- All Decide: Inclusive decision-making is key to the success of any financial mechanism. Local communities, governments, and civil society must have a voice in shaping the projects funded by debt-for-nature swaps to ensure they align with national priorities.
By integrating GPI into the debt-for-nature model, we can build a more sustainable and impactful financial tool. This approach offers not only a way out of fiscal crises but also a pathway for strengthening national environmental governance and advancing climate resilience.
Leading the way: Action and collaboration
Moving in this direction will require bold leadership and active collaboration from governments, financial institutions, civil society, and local communities. This is not a challenge that can be solved in isolation; it requires a collective effort to co-design financial systems that are not only effective but also equitable and sustainable.
Co-design processes should establish guiding principles that prioritize governance, transparency, and community involvement. Civil society must be a critical voice in any conversation seeking to ensure that debt swaps are not only financially viable but also socially and environmentally just.
Drawing on an analysis of debt-for-nature swaps in Seychelles, Belize, Barbados, and the Galapagos, we propose the following six recommendations for future debt swaps in all sectors:
-
Governance. Ensure local governments and communities have a majority voice in debt-for- nature swap governance structures, with equitable representation for national and international stakeholders.
-
Transparency. Mandate full public disclosure of deal structures, including SPVs and financial flows, from the pre-buyback phase through to the post-buyback management of conservation or climate funds.
-
Accountability. Incorporate third-party audits and evaluations to ensure that all actors, including private creditors, are held accountable for delivering on both fiscal and conservation or climate goals.
-
Finance. Minimize transaction costs by using grant-based mechanisms or concessional loans rather than relying solely on market-driven solutions, and ensure that chosen instruments involve fair and equitable access and distribution of risks and benefits.
-
Social justice. Engage local communities early in the planning process and ensure that their livelihoods are protected through compensation or alternative income-generating opportunities.
-
Environmental impact. Link financial disbursements to measurable environmental outcomes, with adequate enforcement mechanisms and long-term sustainability plans for protected areas.
In conclusion, we invite others to join ongoing efforts to create high-integrity debt swaps that can drive meaningful change, such as the initiative by LATINDADD (Latin American Network for Economic and Social Justice) and CDES (Center for Economic and Social Rights) to develop principles for debt swaps that uphold transparency, accountability, and inclusivity. These collaborative efforts represent a significant opportunity to continue strengthening the foundation for high-integrity debt swaps, i.e. ensuring they not only alleviate debt burdens but also contribute meaningfully to environmental conservation and climate resilience.
Just as the Apollo mission united all sectors of society in pursuit of a common goal, today’s global crises require a similar spirit of collaboration and ambition – a mission mentality as our colleague Mariana Mazzucato puts it. By rethinking how we structure debt-for-nature swaps and integrating the principles of Global Public Investment, we can help create a financial ecosystem that works for everyone, not just a select few, while ensuring that biodiversity is preserved for future generations.
The time to act is now. Let’s turn the potential of debt-for-nature swaps into a powerful force for change, unleashing the transformative power of finance to build a sustainable and just future for all.
Jonathan Glennie is the director of Global Cooperation Institute, co-founder of Global Nation and author of “The Future of Aid: Global Public Investment.” Daniel Ortega-Pacheco is the director of Biocarbon (dortega@biocarbon.com.ec) and a former minister of environment of Ecuador.
This commentary is inspired by the pair’s recent publication, “Unblocking Climate & Biodiversity Finance: Global Public Investment” found here. In that piece, they argue that the world needs a more inclusive and comprehensive financial model to address fiscal crises and climate risks. They recognize the contributions of Mariana Mazzucato and Patricia Alemañy, whose work has been instrumental in shaping this proposal.
See related coverage:
$35m debt-for-nature deal aims to protect Indonesia’s coral reefs
Ecuador to boost protection of Galápagos in biggest debt-for-nature deal ever
Ecuadorian President Guillermo Lasso’s commentary at Mongabay about his 2022 Hermandad Marine Reserve announcement:
Ecuador to announce creation of Hermandad Marine Reserve off Galapagos (commentary)
Credits
