Threading the Needle: The Delicate Art of Designing Debt-for-Nature Swaps

Alexander Dryden
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Alexander Dryden: Department of Economics, SOAS University of London. Russell Square, London WC1H 0XG, UK

No 270, Working Papers from Department of Economics, SOAS University of London, UK

Abstract: Debt-for-nature swaps (D4NS) have re-emerged as a popular financial tool, with a dozen transactions completed since 2021 alone. Yet despite their appeal as a triple-win for creditors, debtors, and the environment, their effectiveness remains poorly understood. This paper presents the first comprehensive database of 169 D4NS transactions across 45 countries from 1987 to 2025, covering their structure, scale, and environmental outcomes. A new financial framework is proposed to evaluate these deals based on three core criteria: debt volume, discount achieved, and environmental proceeds. The results reveal that while early-generation D4NS were environmentally robust but small in scale, recent deals, although larger, often deliver limited debt relief and are environmentally ‘leaky’. Furthermore, the most effective transactions from a debt reduction standpoint typically occur amidst an economic crisis. The study concludes with policy recommendations for a more agile and impactful fourth generation of D4NS, involving the creation of a pro-active D4NS distressed debt fund.

Keywords: Sovereign Debt; Climate Finance; Debt-for-Nature Swaps (search for similar items in EconPapers)
JEL-codes: F34 H63 Q56 (search for similar items in EconPapers)
Pages: 6898
Date: 2025-09
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