The government of Ecuador has closed the world’s biggest debt-for-nature swap arrangement to date that establishes a $656-million bond linked to conservation of the biodiversity-rich Galapagos Islands.
The deal, structured by Credit Suisse, sees Ecuador buy back over $1.6 billion of its debt with a $656-mln loan that will be paid for through the new Galapagos Marine Bond, which in turn is expected to generate $323 mln for marine conservation projects for the islands to 2041.
DFC, the US International Development Finance Corporation, has provided political risk insurance for the loan, while the Inter-American Development Bank has provided an additional $85 mln guarantee.
“[T]his deal to support marine conservation, in one of the most biodiverse locations on the planet, highlights the impact sustainable finance solutions can have in addressing the funding gap for biodiversity conservation,” said Emma Crystal, Credit Suisse’s chief sustainability officer.
“By mobilising capital and engaging with different stakeholders, global financial institutions can help drive innovation for ocean preservation and environmental protection.”
Investors bought into the bond at a 5.645% interest rate, and the bond is expected to generate just over $12 mln annually in funding for the Galapagos Life Fund (GLF) for the next 18 years.
The non-profit GLF is funding efforts to protect the marine environment around the Galapagos Island through the Galapagos National Park Service, and according to a press release the funds from this new arrangement will also go towards supporting Ecuador-based groups in conducting research, advance sustainable fisheries, strengthen climate resilience, and develop a sustainable blue economy for local communities.
Revenue from the blue bond will also help Ecuador meet its commitments under the Global Biodiversity Framework (GBF) to protect 30% of its land and sea areas by 2030.
Meanwhile, the debt conversion means the country will spend almost $1.13 bln less on servicing its national debt in coming years.
“This is a vital transaction for one of the most important marine ecosystems on Earth, the Galapagos, providing it with significant funding for generations while reducing Ecuador’s debt service costs at the same time,” said Ramzi Issa, global head of credit investor products structuring at Credit Suisse.
“Ecuador, alongside its partners, is innovating for conservation, capturing the power and potential of private capital to solve pressing issues facing the environment and society more broadly.”
REFORM
The deal has been in the works for three years and follows similar though smaller debt-for-nature swaps done previously, with a $180-mln arrangement in Belize last December the most recent.
There are increasing calls globally to use such swaps at a much larger scale to stave off the triple crises of debt, climate change, and biodiversity loss, with some saying nature-based markets can contribute to scaling the mechanism.
Last month, UN Secretary-General Antonio Guterres added his voice to calls for urgent action to transform the global financial system to ensure it is suited to assist in solving the debt, climate, and nature crises.
South Africa’s Forestry, Fisheries, and Environment Minister Barbara Creecy on Tuesday echoed that sentiment as she opened the 5th Global Biodiversity Finance Conference in Cape Town.
“Neither our biodiversity, nor our climate change objectives can be achieved either by GEF funding or by further loans to developing countries, the majority of which are already heavily indebted. This calls for significant reform of the global financial system and of multilateral development banks,” Creecy said.
“Mechanisms such as debt for biodiversity swaps, payment for ecosystem services, as well as greater availability of grant financing and concessional loans must be considered in the context of achieving sustainable financing mechanisms for developing countries.”
By Stian Reklev – stian@carbon-pulse.com
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