Mortgage Nature? Promises and Realities of Debt-for-Nature Swaps in Emerging Economies

This article examines the effectiveness, limitations and governance challenges of debt-for-nature swaps (DFNs) as financial instruments for reducing external debt of emerging and developing economies (EDEs) while channeling resources toward biodiversity conservation and climate adaptation. In a context in which EDEs must cope with a rapid increase in the amount of government debt, increasing refinancing restrictions, and the growing impact of climate change, DFNs are attracting fresh interest. Although, theoretically, they are able to obtain funding for biodiversity protection and climate adaptation, DFNs only marginally reduce debt. High transaction costs and a lack of transparency significantly limit their concrete advantages. Moreover, their ecological impact remains questionable: environmental additionality is rarely demonstrated, and the commitments made on environmental policy often suffer from little independent evaluation. In light of these findings, the article emphasizes the importance of overhauling DFNs, including the adoption of more rigorous monitoring, evaluation and governance standards, better coordination with national priorities, and more relevant targeting of priority ecosystems. While DFNs are not a miracle solution to the systemic debt-climate-nature vulnerabilities, improving them could contribute to strengthening both the environmental and fiscal resilience of EDEs.