Debt-for-climate swaps: can they be aligned with debt and climate justice?

Debt swaps are gaining international support ahead of COP-28. To many organisations, they are seen as an ingenious solution to increasing funds for Southern countries for climate and biodiversity spending. They are considered ingenious because they capitalise on the vast amounts of debt owed by Southern countries to creditors in the North. However, our briefing on debt-for-climate swaps raises some serious concerns about the desirability of these deals. These echo observations made about debt swaps by many other organisations, including a forthcoming in-depth report on debt swaps produced by Eurodad. For those pursuing both debt and climate justice, either debt swaps should be denounced, or they should be reformed and handled carefully so that they work in the interest of Southern countries rather than the interests of creditors and international conservation finance organisations.


In our brief, we describe that there are various types of debt swaps and they evolved considerably since they were first used in the late 1980s. The complexity and the wide range of debt swaps makes it quite hard to describe them succinctly, which is a problem because many people are confused about how they work and what their impacts are.

One type targets the debts of Southern countries to private investors, also known as commercial swaps. These are exclusively used by US conservation finance organisations, such as The Nature Conservancy (TNC). In the last few years, more than US$2.5 billion held in sovereign bonds has been refinanced by these US organisations in return for pledges on marine conservation in Belize, Barbados, Ecuador and Gabon. These ‘debt-for-ocean swaps’ are complex transactions that involve US conservation organisations working in partnership with investment banks, multilateral regional banks and/or the US government to raise capital through ‘blue bonds’. This money is then lent to Southern countries, partly to finance debt buyback schemes. The savings in these deals for Southern countries are then granted to the US conservation organisation to spend on projects in the debtor country through privately owned and managed Funds. The contracts of these swaps also include legally binding commitments by governments to declare 30% of the oceans as marine protected areas, thereby meeting a key ambition of the 2022 UN Biodiversity Agreement. A failure to deliver on this contract results in fines paid to the US conservation organisation.

Another type of debt swap involves the debts owed to foreign governments (public debt swaps) originating in development loans, for example. Foreign governments agree to cancel part of the debt they are owed on condition that countries spend all (or part) of this money on social or environmentally beneficial projects, as determined by the donor. There are then hybrid deals where US conservation organisations buy debt from bilateral donors and bilateral donors part fund debt buyback schemes owed to commercial lenders.

On the surface, all these types of deals seem attractive: lowering the amount of debt Southern countries owe, boosting spending on socially and environmentally desirable projects and getting Southern governments to commit to positive policy changes. So, what are the problems? To simplify, consider these three themes:

  • First, the ability of these debt swaps to relieve Southern countries of the burden of servicing foreign debt is routinely exaggerated and misrepresented. While some swaps include an element of genuine debt cancellation, most simply shift one government debt into another one. The large swaps instigated by US conservation finance organisations also come with substantial additional costs, including high management fees and profits for intermediaries. In some cases, the new loans issued to countries come with more restrictive clauses than the bonds they are retiring.  The pledges countries make, such as enlarging marine protected areas, are also expensive to deliver, and are not justified by the amounts saved in these deals.
  • Second, debt swaps are mostly creditor-led processes which involve little sacrifice from them. This is objectionable given their role in creating and benefiting from both the debt and climate crisis in Southern countries. Unfortunately, this moral context is ignored in the negotiations of swaps. The deals involving private creditors end up providing them with above-market rates for their debts. The investment banks, such as Credit Suisse, who receive substantial profit from arranging new loans to finance debt buybacks are the same ones that pushed expensive Eurobonds and bank loans that created the underlying debt problems. For bilateral donors, the value of debt swaps is typically reported as grants, which means they reduce the amount of money they would have otherwise spent on providing climate finance. This is a critical issue if debt swaps are to be used to meet pledges on climate finance that is supposed to be additional to current efforts. This could allow Northern countries to avoid additional transfers while also allowing debt swaps to be presented, misleadingly, as charitable gestures, also distracting from the unfulfillment of the current climate finance commitment made in 2009 by rich countries to mobilize USD 100 billion annually to developing countries.
  • Third, debt swaps threaten democratic governance, and they can perpetuate forms of domination in Southern countries by unaccountable foreign organisations. These problems are exacerbated because most debt swaps have lacked transparency, not only in terms of the money exchanged but also regarding contracts and information on the companies involved. It is peculiar that the convoluted transactions arranged by US conservation finance organisations rely on the establishment of new companies registered in offshore tax havens using public funding to de-risk operation. Most debt swaps also come with conditionalities, including handing over the responsibility of spending money produced in these deals to US conservation finance organisations or employing companies from creditor nations to provide services. This opens debt swaps to forms of abuse, whereby the interests and ideology of foreign organisations are allowed to trump those of others, including marginalised communities. In all the debt for ocean swaps, there is no public documentation, including for investors in these deals, of what the money controlled by US conservation organisations will be spent on.

Given these themes, it is understandable why many organisations working on the intersection between debt and climate justice are wary of debt swaps being scaled up. Commercial debt swaps involving US conservation finance organisations, investment banks and global asset management firms are particularly controversial. It is dubious to trust these actors to restructure debt and design conservation projects in ways that do not end up benefiting their own vested interests. There are also valid concerns that the opacity surrounding these deals makes them vulnerable to forms of corruption and fraud. The lack of transparency and public participation involved would not be tolerated by US conservation organisations ‘back home’.

However, there are alternative views. While it is unlikely that debt swaps in isolation offer Southern countries a sustainable solution to debt problems, if used carefully, they might be better than other scenarios. The problem with debt swaps is how they have been designed. More agreeable approaches to debt conversion schemes linked to climate finance must involve more genuine sacrifices from creditors and be used to support country-owned policies and transition plans. This is justified not only because of their role in profiteering from Southern countries’ debts but also in relation to the incalculable climate and ecological debts they owe.  Debt swaps should be freed from conditionalities, and they should build on existing institutions of democratic governance, whereby those most affected by the climate crisis are in control of how money is used and accounted for.

It is hoped that these demands can be articulated in events such as COP 28. Otherwise, debt swaps will continue to be divisive deals that risk greenwashing odious debts and perpetuating forms of neo-colonialism.

Read more in the discuss document Debt-for-climate swaps. Can they be aligned with debt and climate justice?” written by the researchers Daniel Ortega and Andre Standing.

Published on November 30, 2023