〉Ecuador has signed a landmark debt-for-nature swap agreement to raise funds to protect the Galapagos Islands.
〉The financial instrument has been around since the 1980s, with 140 such deals made to date.
〉But what exactly are debt-for-nature and debt-for-climate swaps, and do they go far enough to help countries reduce their debt and take climate action?
The future looks more hopeful for the giant turtles of the Galapagos Islands thanks to Ecuador’s innovative “debt-for-nature” swap that raises money to protect the endangered ecosystem.
Millions will go towards conservation on the archipelago from the sale of a new “blue bond” that will mature in 2041, Reuters reports.
By 2050, it will cost between $3-6 trillion a year globally to mitigate climate change, according to the IMF. But while developed economies are better off, more able to afford the transition and invest in mitigation efforts, there are big funding gaps for emerging economies.
Funding the green transition
Emerging markets require $95 trillion to transition, according to a 2022 report from Standard Chartered Bank. They’re the countries most vulnerable to climate change and with the most debt, meaning they’re at risk of fiscal crisis, says the IMF.
This is where innovative financing models like debt-for-nature or debt-for-climate swaps can help, as participants at the World Economic Forum’s Growth Summit 2023 agreed during a panel session on Squaring the Circle: Delivering on Growth, Jobs and Climate.
Rania Al-Mashat, Minister of International Cooperation, Ministry of International Cooperation of Egypt, which holds the Presidency of COP27 said: “Debt-for-nature swaps or debt-for-energy-transition swaps is where the world needs to push further.”