Debt-for-Nature Swaps

Abstract

While the concept of protecting the natural environment is often popular, sourcing the massive funding required to reach global goals is a much more contentious topic. The purpose of debt-for-nature swaps is to supply part of this shortfall by tapping into government funds that are locked in sovereign debt obligations. Since these swaps began in 1987, they have been particularly popular in Latin America, a region that is rich in biodiversity and owes significant debt. While the swaps were popular at the end of the 20^th century and the beginning of the 21^st, they were criticized for being too small and fell out of favor in the 2010s. In the past four years, the swaps have reemerged, leading this paper to ask: what does the reemergence of debt-for-nature swaps signal for the future use of this financial instrument in Latin America; and furthermore, what are the opportunities and challenges for the future use of these swaps in the region? This paper argues that the recent swaps are uniquely characterized by credit enhancement, allowing them to be a degree of magnitude larger than past swaps; the large sum of funds and the political appeal of these swaps make them promising tools for funding conservation efforts.