Bankers bet billions on new wave of debt-for-nature deals

SHARM EL-SHEIKH, Egypt — The Galapagos Islands, whose thousands of unique species inspired Darwin’s theory of evolution, have incalculable ecological value. But what are they worth?

Perhaps around $800 million, judging by the size of a “debt-for-nature” swap deal that could see Ecuador’s debts cut in exchange for protecting its offshore territory’s fragile ecosystem, according to people with knowledge of the talks.

These kind of agreements are part of efforts to address an intractable quandary facing world leaders at the U.N. COP27 summit underway in Egypt: who will pay the bill for the global fight against biodiversity loss and climate change?

“There’s now a big push to get nature into sovereign debt markets,” said Simon Zadek, executive director at Naturefinance, which advises governments on debtfor-nature swaps and other types of climate-focused finance.

“The tragedy of debt distress offers a real opportunity,” he added, pointing to nature-rich countries who look like ideal debt swap candidates following big drops in their bond prices this year.

Ecuador isn’t among the world’s richer nations. It’s a serial defaulter and its sovereign bonds are again trading at “distressed” levels, or a deep discount to their face value. But it does have a wealth of biodiversity that it could leverage in a wider region where much of the wildlife has been wiped out.

The country is holding talks with banks and a nonprofit group in an attempt to reach a deal that would see about $800 million of its debt refinanced more cheaply, freeing up the savings for conservation efforts, according to the three people with knowledge of the deal, who declined to be named as the discussions are confidential.