Tackling the debt, climate and nature emergencies together

June 2020 to June 2022

In the wake of the COVID-19 pandemic, urgent debt relief is needed. This is an opportunity to change how debt relief is addressed and delivered. Over the next two years, IIED will be working to have creditors and receiving countries take up climate and nature programme swaps – a system that makes it possible to tackle the debt, climate change and nature emergencies together, in order to reduce poverty and ensure an inclusive and sustainable post-COVID recovery.

A sea turtle

In 2018, the Seychelles swapped millions of dollars in sovereign debt for action to protect nearly a third of its marine areas (Photo: Stéphane Enten via Flickr, CC BY-ND 2.0)

Debt has long been a major concern for many developing countries. Repayments mean that vast amounts of money are diverted from action on the climate emergency and biodiversity loss as well as education, health and infrastructure. With the economic impact that will follow the pandemic, the urgency and pressures of debt on developing countries is even greater as millions more women, children and men are being pushed into poverty.

The use of climate and nature programme swaps would benefit lender as well as debtor countries. Under this system a creditor would allow the debt to be reduced either by conversion to the local currency or paid at a lower interest rate or written off. The money saved would then be invested in projects addressing the impacts of climate change and biodiversity loss, such as protecting tropical forests and establishing marine reserves in ways that also contribute to poverty reduction.

For debtors in developing countries this approach could help strengthen their case for debt relief. For climate negotiators, it could substantially supplement the amount of finance provided by the Green Climate Fund. And for creditors including China, OECD government creditors (the Paris Club) and private asset managers, debt for climate and nature programme swaps offer new finance for wider public policy and corporate commitments on the environment and development.  

Relatively small-scale (compared to the sums needed for debt relief), isolated examples of this system have existed since the 1980s. In 2018, US$27 million of debt for climate and nature swaps in the Seychelles led to investment in climate resilience, fishery management, biodiversity conservation and ecotourism.

The need for post-COVID debt relief provides the opportunity to substantially expand their use through sector and budget support for programme-based approaches. 

These programme swaps would be more cost effective and linked to specific pro-poor and gender responsive government policies for tackling climate change and saving biodiversity. With money channelled through governments’ financial systems, they also increase their accountability to their citizens.    

Further advantages include: 

  • Private creditors, such as asset managers who have grown as holders of developing country debt, can fulfil company mandates and wider stakeholder objectives to address climate and environment objectives
  • OECD government creditors (the Paris Club) can increase their climate finance to meet their international obligations
  • China and the UK as key donor countries and respective hosts of the Convention on Biological Diversity conference and UN climate summit, are in particularly influential positions to encourage the use of debt swaps, which will meet the goals of these landmark meetings.

What will implementation require?

Implementation will require complex international coordination as debt is now held by so many actors. The G7 and G20 are key forums of these players and will be a focus of close engagement and advocacy.

The International Monetary Fund has already taken a leadership role on promoting a post-COVID green recovery. The United Nations and World Bank can deploy their sustainable finance and climate expertise. Many of the large conservation NGOs, which have pioneered nature and climate swaps at a project level, will need to gear up for a much broader programme-based approach. 

The European Union with its Green New Deal can absorb this approach into its development policy. And the UK can champion this as it leads key international meetings in 2021 as host of the UN climate summit and as it holds the G7 presidency. It is also important as an active player in past developing country debt relief and as home to many private creditors. 

Project objectives

  • To facilitate a coalition of creditors and debtors to take forward debt relief for climate and nature programme swaps: this requires an engagement strategy to be developed and implemented
  • To support the rollout in selected countries of debt for climate and nature programme swaps: this involves country analysis of the key aspects of a country-level debt for climate and nature programme swap.

What is IIED doing? 

IIED is liaising with possible coalition members among creditors and debtors, including the IMF, UK and Swedish governments. It is also advocating with the G7 and G20 for its members to support debt relief for debt for climate and nature programme swaps.  

The institite is working with UNDP to engage with possible countries, particularly small island developing states (SIDS).


Irish Aid

Swedish International Development Cooperation Agency (Sida)

IIED is seeking additional funds from the UK government and the Canadian government.


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