Q&A with Duke Experts: Reforming Debt-for-Nature Swaps

Debt distress, biodiversity loss and climate change are intertwined crises for developing countries. As international institutions weigh how to help countries tackle these daunting challenges, they are reforming an old idea to free up financial resources to address urgent environmental concerns. 

Debt-for-nature swaps involve creditors voluntarily reducing or canceling debt in exchange for national commitments to fund specific environmental activities, such as conserving rainforests or reducing carbon emissions. The concept has been around for four decades but has had only a modest track record.

In the May 10 issue of Science, three Duke University experts draw on lessons learned to make future swaps more effective. The authors—Elizabeth Losos (Nicholas Institute for Energy, Environment & Sustainability), Alex Pfaff (Sanford School of Public Policy) and Stuart Pimm (Nicholas School of the Environment)—answered a few questions about their Policy Forum.

In 2023, Ecuador agreed to invest hundreds of millions of dollars in marine conservation around the Galápagos Islands in exchange for creditors buying back $1.6 billion of its national debt. (Photo credit: Stuart Pimm)

Q: How do a country’s economic, biodiversity and climate challenges affect each other?

Pimm: For clean water, food and jobs, many developing countries depend on services from nature. Since the COVID-19 pandemic, they have faced ballooning loan payments that divert their limited financial resources away from protecting nature. Climate disruptions further stress species. And when biodiversity declines, nature cannot adapt to temperature or rainfall extremes. Natural disasters, in turn, push these countries further into debt, creating a downward cycle.

Q: What have historically been the stumbling blocks to debt-for-nature swaps delivering their intended results—both for creditors and borrower nations?

Pfaff: For debtor nations, past nature swaps’ financial relief was small relative to the amount of debt countries owed. That made swaps inefficient, given how much effort they required. Also, some felt nations’ sovereignty had been infringed. For creditors, it was uncertain whether these nature swaps made a difference for conservation. For example, because they supported projects targeting relatively small areas, it was easy for degradation to shift elsewhere within countries.

Q: What reforms do you propose to address these shortcomings?

Losos: A critical—if challenging—reform is to scale up debt relief and environmental commitments. Nature swaps large enough to restore a country’s fiscal health can be worthwhile for debtors and creditors. Yet relief must be based on measured gains in biodiversity and climate mitigation and adaptation. That guarantees real benefits to creditors and gives debtors flexibility to meet agreed-upon metrics how they think best. Swaps then reflect debtor nations’ local knowledge and priorities. 

Q: How have conditions changed to make the proposed reforms possible? 

Losos: We now have a much better idea of what works, with 40 years of lessons from prior nature swaps. Better understanding also comes from evaluations of related development and environmental projects. Also, critically, the global context has changed significantly in the intervening years. Governments and international institutions now broadly agree that degrading nature can diminish economic prosperity. They are actively seeking solutions. Further, many developing countries have made commitments within international treaties to address climate change and biodiversity loss, and are requesting outside aid to help meet these pledges. All of this makes the moment right to reform nature swaps dramatically.