Debt Conversions Are a Key Piece of the Climate Finance Puzzle

Delegates at this year’s United Nations Conference of the Parties (COP30) face a critical question: how to pay for the next generation of initiatives to tackle climate change. Governments are exploring available options, including sovereign debt conversions. Often referred to as “debt-for-nature swaps,” this tool, in which higher-cost debt is refinanced at a lower rate, typically with credit guarantees or insurance to lower the risk for private investors, is one potential solution.

A key outcome at COP29 a year ago was the “Baku to Belem Roadmap to 1.3T,” which featured a strong call for countries to work together to scale up financing for climate action—from public and private sources—to at least US$300 billion per year by 2035. It outlines how countries can collectively reach the $1.3 trillion goal, emphasizing innovative approaches to unlock capital and accelerate progress.

The roadmap highlights newly submitted Nationally Determined Contributions (NDCs) as central to driving investment. These national climate plans aim to cut emissions, conserve ecosystems, and build resilience. However, without funding—and facing a deadline to show tangible progress toward holding planetary warming to 1.5 °C by 2030—many NDCs have stalled. To make these plans viable, countries need fiscal breathing room. The roadmap calls in part for debt conversion strategies linked to resilience goals that can free up resources for climate investments. By reducing debt burdens and channeling savings into ecosystem protection and adaptation, debt restructuring mechanisms create the financial foundation for turning NDC commitments into real-world action.

Case studies: Ecuador and Barbados lead the way

The 2023 Galápagos debt conversion in Ecuador is a leading example. With support from a diverse group of multinational and finance partners, Ecuador refinanced $1.6 billion of its debt at lower interest rates. The transaction, which will save the country more than $1 billion on debt service, will inject over $450 million into the country’s marine protection efforts over the next two decades. Among the initiatives to be funded is a new endowment that will provide about $12 million annually for conservation in and around the Galápagos Islands.

The Galápagos deal’s success reflects several key ingredients: government leadership; credit enhancements to create the savings; local governance through an Ecuadorian-led trust; and rigorous monitoring to ensure accountability. Together, these elements form a model that could be adapted elsewhere to advance climate goals. This deal was made possible through the collaboration and efforts of a wide range of partners: the U.S. International Development Finance Corporation, the Inter-American Development Bank, Oceans Finance Company, Aqua Blue Investments, Credit Suisse, Pew Bertarelli Ocean Legacy, Assurance Services International, Baker McKenzie, Bustamante Fabara, Clifford Chance LLP, Dentons, Lazard Ltd., Dona Bertarelli Philanthropy, and Norton Rose Fulbright LLP.

And the Galapagos transaction is not the only debt conversion success story. The Government of Barbados completed a debt-for-climate swap in 2024 that freed up funds for a water reclamation facility to address severe water scarcity while also reducing pollution that threatens marine ecosystems and coral reefs.

In an acknowledgment of debt conversion’s benefits, leading environmental organizations—Conservation International, The Nature Conservancy, The Pew Charitable Trusts, Re:wild, The Wildlife Conservation Society, ZOMALAB, and World Wildlife Fund—came together in 2024 to form the Debt for Nature Coalition, which was recently recognized as a finalist for the prestigious Earthshot Prize, founded by Prince William and The Royal Foundation. The nomination underscored what can be achieved through innovative and collaborative efforts to scale up conservation finance.

Debt swaps: One tool among many for climate finance

Debt conversions alone cannot address all the financial gaps related to tackling climate change. Still, when aligned with national climate goals, they can be an effective financing tool that connects fiscal stability with long-term outcomes—for example, by protecting mangroves, seagrass, and coastal ecosystems that store carbon and buffer communities from extreme weather.

As COP30 unfolds, debt conversions deserve a place in the climate-finance conversation—not as a cure-all, but as a proven, partnership-driven approach that complements broader efforts to fund a nation’s environmental efforts.

Terry Miller is a senior officer and Rebecca Harris is a senior associate with The Pew Charitable Trusts’ conservation support team.