Context
The developing world faces a double crisis – debt overhang and ecological collapse. Debt-for-nature swaps are often presented as being able to address both these crises by enabling developing countries to lower debt and invest in environmental protection. Debt-for-nature swaps are financial transactions in which a portion of a country’s debt is written off against a commitment to dedicate part of the proceeds of the operation to environmental protection investments.
A too-often left-aside dimension of the transition towards ecologically sustainable economies and society is the need to adapt to the strengthening impacts of climate change. In the face of strong and unfulfilled needs of adaptation investments in developing countries, how can debt-for-nature swaps contribute to bridging this gap? Can they be scaled up and contribute a fair share to solving the double crisis the developing world experiences? To what extent is the international monetary system in general fit for coping with climate breakdown?
Debt-for-adaption swaps, the international monetary system & climate change
2° Investing Initiative had the privilege of organising a panel discussion last June – affiliated to the Summit for a New Global Financing Pact – entitled “Debt-for-adaptation swaps, the international monetary system & climate change”. During this event, the experts Jahan Chowdhury (Global Lead for Environment and Climate at the International Fund for Agricultural Development, United Nations – climate change adaptation expert), Kevin Bender (Director for Greening Sovereign debt at The Nature Conservancy – debt-for-nature swaps expert), and Riwan Driouich (Senior Economist at 2° Investing Initiative – climate finance expert) explored in depth the three questions mentioned above. The event was moderated by Hélène Lanier, CEO of 2° Investing Initiative.
Key discussion points involved an overview of the adaptation challenges which developing countries face, by Jahan Chowdhury. He highlighted the various challenges, ranging from prioritisation to mainstreaming and bankability, to scale up adaptation investments.
Kevin Bender provided an extensive discussion of debt-for-nature swaps, detailing past instances, financial frameworks, and potential for rollout. The role of credit enhancement in debt-for-nature swap operations is critical to fostering investor buy-in, and multilateral development banks have the potential to scale up enhancement and deployment of such operations.
Riwan Driouich discussed the structural deficiencies of the international monetary system when it comes to sustaining macroeconomic stability, increasingly jeopardized by climate change impacts, and fostering adaptation investments. In particular, hierarchies between currencies and the thinness of the global financial safety net make the international monetary system ill-equipped to face climate breakdown.
Discover the replay of the “Debt-for-adaptation swaps, the international monetary system & climate change” event.*
*Do not forget to log in to Vimeo so you can see the video. 🙂
