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A recent report suggests that utilizing over $100 billion in debt-for-nature swaps could be a valuable tool in combating the climate crisis. EcoWatch, initially established in 2005 as a newspaper focused on environmental news in Ohio, has evolved into a digital platform committed to sharing high-quality, evidence-based information on environmental topics, initiatives, and remedies.
A recent study by the International Institute for Environment and Development (IIED) suggests that over $100 billion of debt held by developing countries could potentially be used to fund projects focused on restoring nature, safeguarding ecosystems such as rainforests and coral reefs, and adapting to climate change.
This study is a component of IIED's initiative called "hidden handbrakes," which aims to uncover and clarify hidden barriers that hinder progress in addressing climate change.
Laura Kelly, director of research group Shaping Sustainable Markets at IIED, pointed out that countries that are most at risk from increasing temperatures often have significant debt burdens. These countries are constantly paying interest to wealthier nations that have played a larger role in causing the climate crisis. Kelly made these comments in a press release issued by IIED.
According to Kelly, a significant amount of money is being allocated to support large polluting companies in a manner that is inherently unjust.
Kelly expressed concern that funds intended for ecosystem restoration and community protection are being redirected to banks and polluters in wealthy countries. She believes that the IMF and World Bank need to acknowledge that their current lending practices are not effective for benefiting people or the environment. Kelly argues that the outdated and colonialist mindset of the financial system needs to be replaced in order to ensure fair treatment for all.
IIED, a non-profit organization located in the UK, examined the possibility of swapping debt for nature in a selection of 49 developing countries that are at high risk of failing to repay their external debts, based on the information currently available.
According to Reuters, the analysis was conducted using data from the World Bank and IMF estimates. The data revealed that the countries collectively owed $431 billion to various entities including the IMF, wealthier nations, and hedge and pension funds.
According to Kelly, countries like Sri Lanka, Pakistan, and The Gambia could see positive outcomes from participating in debt-for-nature exchanges. The Gambia, in particular, is facing significant threats from rising sea levels and should prioritize preserving wetlands and implementing flood prevention measures.
IIED stated that when a nation and its creditors come to an agreement, a portion of the debt can be pardoned if the nation achieves specific, measurable, and traceable outcomes in environmental or climate initiatives.
IIED estimated that around $103.4 billion could potentially be used for debt-for-nature swaps. This method has been implemented in countries such as Gabon, Ecuador, Belize, and Cabo Verde.
According to IIED, the issues of debt, biodiversity loss, and climate change are interconnected in the world's poorest nations. These countries are also the most at risk for climate disasters and have contributed less to greenhouse gas emissions. The majority of climate finance provided to these countries is in the form of loans, rather than grants, resulting in them accumulating more debt as they work to combat climate change. Research shows that poorer countries end up spending more on repaying their debts than they receive in funds to address climate change.
IIED suggests that a higher percentage of exchanges should be directed towards alleviating the debt burdens of developing countries, in addition to utilizing other strategies. It also stated that in certain cases, completely canceling the debt may be the most suitable option for these countries.
The press release suggested that these solutions should be viewed as part of a comprehensive approach tailored to each country, including agreements to temporarily halt debt repayments during disasters and insurance that automatically pays out to support recovery efforts.
The report examined 29 nations that are part of the Least Developed Countries Group and are united in United Nations climate discussions. It suggested that debt-for-nature swaps could provide up to $33.7 billion for these countries, a significant increase from the $6.1 billion they received in climate finance in 2021.
The Organisation for Economic Co-operation and Development reported that in 2021, the 49 countries analyzed by IIED received a total of $13.8 billion in climate finance. IIED highlighted that this amount was far below the necessary funding.
IIED stated that the potential savings from swaps far exceed the current pledge of $700 million to the COP28 'loss and damage' fund.
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