Top development banks, funds set up ‘debt-for-nature’ task force
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FILE PHOTO: Fishermen go out to sea after Ecuador’s goverment expanded the protected marine area around the Galapagos Islands, Ecuador January 24, 2022. REUTERS/Santiago Arcos
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By Marc Jones
LONDON (Reuters) – A consortium of top multilateral development banks (MDB) and climate funds launched a global « task force » on Monday to scale up the number and size of ‘debt-for-nature’ swaps that countries can do.
Debt-for-nature swaps, where a developing country’s debt is cut in return for protecting vital ecosystems, are attracting growing interest following a number of successful deals in places such as Belize and the Galapagos (NASDAQ:GLPG) Islands.
The creation of the task force, which Reuters reported was underway last week, is the most significant step by the global club of multilateral lenders, which between them have trillions of dollars worth of firepower, to ramp up their support for these deals.
It will initially be led by the Inter-American Development Bank (IDB) and the U.S. International Development Finance Corporation (DFC), lenders which between them have been involved in all the recent swaps, also including Barbados and Gabon.
The Asian Development Bank, the African Development Bank, France’s Agence Française de Développement, and the European Investment Bank will also be part of the task force, as well as the Green Climate Fund and the Global Environment Facility.
« We are looking to scale up and enhance the impact of climate and nature finance, » IDB President Ilan Goldfajn said, with DFC CEO Scott Nathan adding that it « solidifies » a commitment by multilateral lenders to better co-operate.
Development banks play a particularly important role in debt-for-nature swaps because they provide the credit guarantees and/or political risk insurance that make them viable.
At their simplest, the swaps work by buying up a country’s bonds, often at a discount, and then replacing them with cheaper eco-labelled ones that come with the special MDB guarantees.
Those enhancements make them less of a default risk in the eyes of investors and therefore drive down their cost. Some of the savings – although not necessarily all, critics note – are then funnelled towards conservation efforts.
