Finance Solutions for Nature 2025

2.5 Debt-for-nature swaps (DNS) DNS are an established mechanism to re-structure sovereign debt to finance conservation and restoration. Overview70 DNS are a financial mechanism that allow countries to restructure bilateral or multilateral debt in exchange for commitments to fund local conservation and restoration. They are also known as “debt-for-nature conversions”. The DNS structure is the overarching solution, while the underlying financial instruments – bonds, loans, guarantees, credit enhancements, parametric insurance or performance-based grants – vary by transaction and investor type. DNS can be commercial, blended or concessional. These transactions involve debtor governments, creditors, MDBs, private financiers and conservation organizations. Strong governance, reliable credit enhancement, transparent monitoring, reporting and verification (MRV) and long-term financing are essential to success. Potential to mobilize capital for nature DNS are relatively well-understood, with over 140 transactions between the 1980s and 2022, restructuring more than $3.7 billion in debt – likely over $5 billion as of today.71 Two-thirds have occurred in Latin America and the Caribbean. Transactions are complex, involving coordination across multiple government ministries, from finance to environment. DNS can unlock significant sovereign resources for nature, often with co-financing. Recent deals have ranged from $10 million to ~$1.5 billion, with an average of 46% redirected to conservation (based on data from The Nature Conservancy). Even fiscally stable countries may use DNS to refinance high-cost debt on better terms. However, DNS currently mobilize only a small share of needed capital. Eligible debt is limited, conservation allocations are sometimes modest and governance may lack transparency. High transaction costs and complex negotiations can dilute impact. There are also concerns that swaps raise debt sustainability concerns, including higher yields, rising debt burdens and currency risk.72 DNS are typically used for habitat conservation, ecosystem restoration and species protection, with growing relevance for ocean ecosystems. Ability to price nature into markets DNS tie refinancing terms to environmental outcomes, linking debt relief to defined metrics and KPIs that incentivize nature-positive results. They also embed nature in national budgets, encouraging integration of natural capital into financial policy. However, outcomes are rarely valued using formal natural capital accounting. Financing commitments can fall short. Past swaps, especially bilateral ones in Latin America, faced criticism for weak oversight and unclear impact. Without local buy-in – particularly from Indigenous Peoples and Local Communities – projects lack legitimacy. Governance gaps, perceptions of foreign interference or greenwashing also risk undermining trust. Pathways to mainstream Standardized frameworks and MDB-supported term sheets can simplify DNS negotiations, cut costs, improve terms and fill capacity gaps. Collaborative platforms can embed best practices,73 including community engagement, independent governance via conservation trust funds (CTFs), performance-based rebates, regular reporting and administrator training. Initiatives such as the UN Framework Convention on Climate Change (UNFCCC) COP27 Sustainable Debt Coalition and COP28’s MDB working group provide momentum, with further support called for at the 2024 World Bank and G20 meetings.74 Expanding eligible debt and initiatives through targeted sovereign support can accelerate uptake. A 2023 study found that 67 countries at risk of default hosted 22% of global biodiversity hotspots; for 35 countries, all biodiversity hotspots could be protected for a fraction of their national debt.75 Building a stronger business case for bilateral swaps is key, as many lenders still favour traditional terms. Credit-enhanced, voluntary DNS models have gained traction as scalable, market- based solutions. 67 countries at risk of default hosted 22% of global biodiversity hotspots; for 35 countries, all biodiversity hotspots could be protected for a fraction of their national debt. Finance Solutions for Nature: Pathways to Returns and Outcomes 24