Debt-for-Nature Swaps: When Bankers Embrace the Great Outdoors

A new type of financial instrument is playing a larger role in finance as a tool to help address climate change and help investment bankers experience nature from their cubicles at 1 am.

The tool: Last year, Belize became the most recent developing nation to embark on a social and financial experiment, know as “debt-for-nature swaps”.

How they work: Many developing nations have been running into debt issues, particularly with rising interest rates making debt payments more expensive. Major financial institutions have been stepping in to help distressed countries by relieving some of their debts, but with a catch: the country must put some of the savings towards sustainability and biodiversity projects.

In 2022, Credit Suisse helped relieve Belize of $553 million worth of debt to the tune of just 55 cents on the dollar. In exchange, Belize agreed to put $4 million per year into marine conservation for the next two decades and double its marine protection parks.

• Belize is just be the start. Gabon is planning $700 million in swaps in exchange for marine conservation, Ecuador is looking to do a swap of nearly $800 million, and Sri Lanka is exploring a $1 billion deal where it will help restore degraded ecosystems.

Not everyone is sunny with swaps

Greenpeace and other organizations called for debt-for-nature swaps to be rejected, mostly due to their lack of transparency and the nature of powerful banks influencing how developing countries spend their money.

Big picture: Debt is no joke, just ask Bed Bath & Beyond. So incentivizing positive change through managing a challenging financial situation like debt for developing nations can be a positive, especially as the majority of emissions for the rest of the century will be coming from developing nations in Latin America and Asia.