Many countries face a dual challenge: mounting debt burdens and growing pressure to address climate change. For some, a debt-for-climate swap, or debt-for-nature swap, may be a useful tool in tackling both.
Debt-for-nature swaps, along with variations such as debt-for-climate and debt-for-environment swaps, are transactions where a portion of a country’s debt is forgiven or refinanced in exchange for the local government investing in conservation or climate priorities.
While there have been some 140 debt-for-nature swaps over the years, the past 18 months have seen a sharp increase in the use of this tool. That has included participation from major development finance players including the U.S. International Development Finance Corporation, the Inter-American Development Bank, and large private financial institutions.