The Birth of a New Climate Solution

The rise of the genius debt-for-nature swap.

by Greenwashed

The Birth of a New Climate Solution


Welcome back to Greenwashed! πŸ‘‹

In conservation, much of the attention and money given to causes revolves around revitalizing areas we've already ruined, such as reforesting the Amazon or cleaning up the Pacific garbage patch (which, by the way, is now twice the size of Texas).

This approach is logical, and also drastically needed. However, it leaves a blindspot in the worldwide conservation movement. By focusing all of our resources on areas that are in need of revitalization, we're ignoring areas all around the world that aren't ruined yet, but are on track to be.

Preserving these areas is just as important as restoring other ones, and 2023 has seen the rise of a clever way to achieve that. πŸ“ˆ

Debt for Nature: A Fair Trade? πŸ€”

The technical name for this new solution is a "debt-for-nature swap".

Colloquially known as "green bonds" or "blue bonds", debt-for-nature swaps usually involve a country in need of financial assistance in possession of important ecological areas. These countries partner up with institutions that have the financial resources to help them, and in exchange for monetary assistance offer conservation guarantees. 🀝

A perfect example of this arrangement is the most recent major blue bond that occurred. πŸ‡¬πŸ‡¦

In August, Gabon reached an agreement with a group of financiers led by the The Nature Conservancy, a major US nonprofit. The deal saw Gabon switch $500 million of its international debt to the agreed-upon blue bond, which had much more favorable terms. The African nation will end up saving $163 million over the life of the bond, and in exchange will use some of that money to guarantee environmental protection in some of its most ecologically important areas.

Plage de MalibΓ© 2.
The Gabonese coastline, home to the world's largest population of endangered leatherback turtles. Ralph Messi

Normally, finance deals between developing countries and wealthy institutions are impeded by a set of conflicting motives.

Financiers want to get returns on their capital, and the political instability of developing countries makes them riskier investments. This results in bonds with high interest rates and short maturity timelines, making it more difficult for countries like Gabon to actually develop using the funds. πŸ“‰

Blue bonds solve this problem. Financiers get assurances on environmental protection as well as the eventual returns from the bond, while the governments save millions and millions of dollars through more favorable bond terms while simultaneously securing funding for environmental protection programs.

Debt-for-nature swaps are one of the true win-wins in international finance. 

After centuries of imperialism, colonialism, and exploitation, it's fair to say that developing countries are probably entitled to some more favorable bond terms (at the very least). Securing that by tying in protecting the environment--which is in everyone's interest--is the best-case scenario for everybody.

Even more promising, Gabon's wasn't the only debt-for-nature swap that made headlines this summer. In June, Ecuador secured a record-breaking $1.1 billion blue bond that funnels $18 million annually to protect the Galapagos Islands, the Ecuadorian territory famous for its wildlife and inspiring Charles Darwin's writings on evolution. πŸ‡ͺπŸ‡¨

While blue bonds have technically been around since the 1980s, only in 2023 have they started to really take off as a climate solution. Of the 140 swaps that previously occurred, just two of them had a value greater than $150 million.

In the last two months, the Ecuadorian and Gabonese deals alone pulled $1.6 billion--shattering the previous record and setting the stage for a massive uptick in blue bonds in the near future.

As the world continues to grapple with the climate crisis and developing countries continue to face financial insecurity, nature-rich-but-cash-poor countries are lining up to secure debt-for-nature swaps. Simultaneously saving the environment and strengthening developing economies is a true win-win that we should all hope for more of in the coming years. 

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