Debt-for-Climate Swaps

Debt for climate swaps are operations that involve the cancellation, exchange, or buyback of a portion of a country’s debt in return for policy commitments to invest the resultant savings in environmental conservation or climate change mitigation and adaptation projects. These swaps can include both official bilateral and commercial debt.

2030 Goals

While these swaps are unlikely to scale easily, an agreed-upon set of principles/legal framework should be created as the basis of debt-for-climate swaps, speeding up implementation and lowering barriers to entry for countries and debt situations where its implementation makes sense.
Test instruments that have previously been used for conservation to support coal phaseout, potentially in conjunction with offsets to support both the swap and the domestic offset market.

Status
No progress

DFIs are very keen to implement these, but the contracts involved can be complicated, time-consuming, and often require philanthropic involvement, making them more difficult to implement.
Stakeholders will need to be identified on a case-by-case basis; public creditors may be able to offer partial or full forgiveness in exchange for climate commitments, whereas private creditors will likely need to be bought out using proceeds from new, lower-cost debt that benefits from guarantees or other concessional de-risking instruments.
Conversations on effective swaps are increasingly including economic and social development as priorities, alongside environmental / conservation KPIs.
While the absolute number of transactions has remained relatively modest, their size has significantly increased. Ecuador’s debt swap is particularly noteworthy, amounting to USD 1.6 billion and increasing interest in these tools.

Relevant Actors & Audiences

Public FIs

US Development Finance Corporation

Multilateral Development Banks

Inter-American Development Bank (IDB)

International Organizations

Conservation International, The Nature Conservancy, The Pew Charitable Trust, Re:wild, The Wildlife Conservation Society, World Wildlife Fund (WWF)

Resources

The below resources all pertain to the topic of Debt-for-Climate Swaps.