Can debt-for-nature swaps be made to work?
One of the solutions to the looming sovereign debt crisis could be to link financing to natural capital or climate adaptation.
Finance for Biodiversity (F4B), an initiative from the Swiss-based Mava Foundation, has put forward a proposal for a nature performance bond (NPB), whereby a developing country could raise debt linked to nature-related outcomes.
Somewhere between a sustainability-linked bond and an outcomes-based bond such as a social impact bond, the NPB would have an interest rate, or even principal, that ratchets down as nature-based outcomes are met.
These could include biodiversity protection such as restoration of degraded forest and other landscapes, wetland management and species conservation and recovery, as well as climate change adaptation and mitigation, job creation, health and other social goals.
In September, Swiss Re published a report indicating that ecosystem collapse was threatening a fifth of the world’s countries – many of whose economies rely heavily on natural capital. Countries such as India and Nigeria were highlighted for having a high GDP dependency on biodiversity and ecosystem services.
Covid-19... has highlighted how a single country’s misstep with nature can bring the entire global system to a standstill
An NPB would address both biodiversity loss and climate adaptation, as well as ballooning deficits owing to Covid-19.