Background
The world confronts intertwined crises of biodiversity loss and climate change, threatening human well-being despite unprecedented global commitments to conserve 30% of land and water and halve emissions by 2030. Progress is hampered by a significant funding gap for nature, especially as 60% of low-income, climate-vulnerable nations face debt distress, limiting their ability to act.
Sovereign debt conversions offer a powerful solution, potentially unlocking up to $100 billion for climate and nature finance by allowing governments to refinance expensive debt into more favorable terms. This generates savings that are reinvested into ambitious conservation and climate commitments, delivering economic benefits to Global South nations—including improved financial stability—while providing vital resources for sustainable development, local communities, and the protection of crucial ecosystems.
Pioneered by The Nature Conservancy in 2016, this innovative approach has already refinanced over $2.5 billion in sovereign debt across five projects, channeling more than $850 million into conserving approximately 2 million square kilometers of critical ocean habitats.
“Conservation without money is conversation only.”
The Coalition as a Solution
The magnitude of the need for sovereign debt conversions requires radical collaboration among NGOs—leveraging the strengths of individual organizations to realize shared climate, nature and people outcomes on a global scale. The Coalition is not exclusive, and founding members look forward to welcoming other like-minded members over time. The Coalition with focus its efforts around four pillars.
The Four Pillars:
Pillar 1
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Creating and maintaining practice standards for sovereign debt conversions for nature and climate
Pillar 2
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Developing a shared pipeline of potential projects
Pillar 3
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Working to expand the amount of capital available for credit enhancement
Pillar 4
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Coordinating policy efforts and sharing knowledge and best practices.
Standards: Along with a diverse panel of leading financial, legal, environmental, and other experts, Coalition members are developing practice standards for sovereign debt conversions for nature and climate, expected to be published by early 2025. The standards will guide the Coalition’s efforts and serve as a resource to other stakeholders participating in debt conversion projects. The standards will address the following topics: conservation, climate, and people; governance and operations; financial transaction structuring execution; conservation trust funds; and monitoring, reporting, and verification.
Joint project development and support: Coalition members recognize that radical collaboration on debt conversion projects can lead to better outcomes for climate, conservation, and people. Leveraging the strengths of their individual organizations, the Coalition will develop a joint pipeline of potential debt conversion projects and work together alongside governments, local communities, and civil society to finance and achieve durable conservation and climate outcomes.
Policy: Debt conversion projects rely on the use of credit enhancements (e.g., guarantees, insurance) from development finance institutions (DFIs) and other public/private capital providers to unlock funding in the refinancing process that is redirected towards climate and nature investments. To date, the U.S. International Development Finance Corporation, Inter-American Development Bank, and CAF – Development Bank of Latin America and the Caribbean have played a critical role in providing these credit enhancements, but scaling debt conversions will require increasing the amount of capital available for credit enhancements and number of institutions providing it. The Coalition looks forward to deepening its relationship with the Task Force on Credit Enhancements for Sustainability-Linked Sovereign Financing formed at COP28 last year and engaging with other DFIs in pursuit of shared climate and nature outcomes.
Knowledge sharing: Learning from each other's experiences is vital. The Coalition will serve as a forum for knowledge exchange to continuously improve the effectiveness and ambition of future debt conversion projects and growing its body of best practices.