Climate Finance | March 4, 2021

Greening sovereign debt to tackle converging crises

Amy Cortese
ImpactAlpha Editor

Amy Cortese

ImpactAlpha, Mar. 4 – A majority of low-income countries may need to restructure their loans or seek fresh ones in a brewing sovereign debt crisis stemming from the COVID pandemic. Accelerating mass extinctions and the climate emergency signal the stress on natural systems as well.

Can solutions to one crisis address the others?

The “Nature and Climate Sovereign Bond Facility” proposed by Finance for Biodiversity aims to build on investor interest in green debt and create nature-performance bonds and other instruments that align payments with environmental outcomes.

“This could be a key tool in creating a positive nature capital outcome while avoiding default,” Finance for Biodiversity’s Louis de Montpelier told ImpactAlpha.

While investor interest in green investments has surged, the $64 trillion sovereign debt market has been slow to integrate environmental, social and governance, or ESG, factors.

Inclusive, green debt relief

Angola, Argentina, Belize, Ecuador, Kenya, Lebanon, Suriname and Zambia are among the countries facing debt restructuring. The cost of debt service in 2020 and 2021 will be over $3 trillion across emerging economies according to the United Nations Conference on Trade and Development.

The United Nations Economic Commission on Africa, for one, is looking to provide debt relief linked to concessionary access to nature- and climate-positive sovereign debt instruments.

Finance for Biodiversity calls for an international organization to set standards and seize “an historic opportunity for aligning sovereign debt relief with nature and climate outcomes.”