Since Charles Darwin used the Galapagos Islands’ finches as the basis of his theory of evolution, this archipelago in the Pacific has held a central role in conservation. In 2023, the islands were the focus of conservation headlines again when they were the subject of the largest “debt-for-nature swap” in history. The swap, widely reported as being worth $1.6 billion, would help protect large areas of ocean around the Islands and would even “improve the quality of life of Ecuadorians,” the Inter-American Development Bank claimed. The swap would enable “work on a blue economy, promote climate resilience, and support sustainable fishing,” the Ecuadorian government said in a press release.
The use of debt swaps linked to climate mitigation funding has accelerated in recent years as the amount of money pledged to climate action has ballooned. In 2024, six of the largest U.S. nongovernmental organizations focused on the environment, including the World Wildlife Fund and the Pew Charitable Trusts, announced a global coalition to develop more swaps. Significantly, it could be argued that the Trump presidency has had little to no impact on money pledged to climate action. For instance, at the COP30 U.N. climate change conference in November, a new pledge of $1.3 trillion was agreed, a significant increase on previous targets.
To their proponents, debt-for-nature swaps are a win-win solution to the dual crises of developing country debt and climate change. But to their critics, they are overly complex instruments that transfer control of biodiversity hotspots to the private sector and “financialize” conservation. The basic concept of the debt-for-nature swap is that a developing country with problem debt can “swap” some of it for better terms, in exchange for guaranteeing that a chunk of the savings will be spent on nature conservation.
As countries across the world deal with squeezed budgets caused by geopolitical uncertainty and the conflict in the Gulf, they are seeking innovative ways to meet their climate and environmental commitments. Debt-for-nature swaps are an enticing option. But outside of the small world of “green” finance, they remain relatively unknown.
In the 1980s, developing nations with huge levels of debt — often the result of predatory lending practices employed by creditor countries — had little or no resources to protect natural environments. In parallel, the global community was beginning to wake up to the growing shadow cast by the climate crisis. From this context, the concept of the debt-for-nature swap was born. In a 1984 New York Times op-ed, Thomas Lovejoy, then-vice president of the World Wildlife Fund, proposed a novel solution. He warned that debtor nations under pressure to reduce public spending would struggle to fund environmental protections, and proposed a system whereby countries willing to protect natural resources “could be made eligible for discounts or credits against their debts.”
The first swaps were fairly simple. They were usually struck between two nations and involved amounts of money that seem quaint today. The first, in Bolivia in 1987, was worth just $650,000. They are now much more complex, involving multiple layers of organizations and institutions, including major conservation NGOs, most notably The Nature Conservancy (TNC). Multiple private and development banks are also involved.
According to a 2022 report by the African Development Bank, there have been 145 debt-for-nature swaps since the 1980s, which have written off $3.7 billion worth of debt worldwide. The majority of that, $2.4 billion, was in Latin America and the Caribbean.
An “ideal” candidate for a swap is a poorer-than-average nation with a high level of ecological importance, perhaps because of its diverse range of species or habitats. It should also have high “country risk” — meaning the financial markets believe the country is unlikely to pay its debts. Nations borrow from financial institutions by issuing bonds, where they agree to pay back the investors with interest after a set period of time. If a country is a risky bet, then the financial institution that holds its bonds might agree to sell them to someone else at a discount.
In a debt-for-nature swap, the bonds are purchased by an NGO using funds from a private bank. The debt is then renegotiated with the country, which is offered a “haircut,” or discount, on the debt in exchange for tying up the rest of the savings in nature protection. Independent researcher Jason Ventaja, who has advised organizations including the Committee for the Abolition of Illegitimate Debt, prefers the term “debt conversion” over “swap” to more accurately describe the process.
In the case of the Galapagos deal, Credit Suisse, with technical and financial support from the Pew Charitable Trusts, bought an estimated $2.6 billion in bonds for a sum of $656 million, before striking its deal with Ecuador, which freed up just over $400 billion of conservation funding.
The idea is alluring and is sold by its proponents (mostly large conservation NGOs and development banks) as a win-win. There is a deep connection between the climate crisis and the debt levels in developing countries, which encourage governments to pursue short-term economic success at the expense of environmental harm — such as oil and gas extraction in the Amazon. By reducing debt and boosting conservation spending, both of these crises are alleviated. A report published last year by the International Institute for Environment and Development claimed that such swaps can “provide sovereign debt relief to achieve climate and nature goals” and that more than $100 billion in debt could be freed up.
According to TNC, which is one of the leading proponents of this dealmaking through its “Blue Bonds for Ocean Conservation” program, making “smarter decisions” about ocean conservation could make a difference to 2 billion people living in coastal regions. On its website, the organization states that the program to promote debt-for-nature swaps is one of its “most innovative solutions” and can create long-term financing to “help protect 30% of our global ocean while achieving sustainable economic development and adapting to climate change.”
But critics, who include debt justice campaigners from the Global South, have labeled them a “false solution” to both the climate and debt crises, arguing that the actual amounts of debt forgiven are minimal and, worse, that they have the potential to distract from what they consider real, more effective climate action, such as countrywide transitions away from oil and gas industries. “It doesn’t represent the structural reform that we need to really tackle the debt problem,” said Carola Mejía, a Bolivian economist from the Latin American Network for Economic and Social Justice (LATINDADD).
The debt crisis is proving a thorn in the side of developing countries — often home to outstanding natural beauty and biodiversity — when it comes to tackling climate change. Low- and lower-income country debt is at a 30-year high, according to a 2024 report by Debt Justice, a British NGO using data from the World Bank. This is “preventing the public spending needed to cut poverty and tackle the climate emergency,” said the organization’s policy director, Tim Jones, in a press release.
But despite being touted as a promising solution, criticisms of the financial structures emerged soon after they were first put into action. One example is Bolivia’s early deal in 1987, when it sold $650,000 worth of debt to the NGO Conservation International for $100,000, to fund legal protection for the Beni Biosphere Reserve. Criticisms soon followed. Local Indigenous communities were never consulted about the implications of the deal, according to a 2021 report by the United Nations Economic and Social Commission for Asia and the Pacific. The deal heavily restricted Indigenous activities in the reserve and granted forestry licences on its borders. This caused conflicts between Indigenous communities and “logging and ranching interests,” according to the report.
In 2024, a group of 24 environmental organizations filed a complaint with the Inter-American Development Bank regarding the Galapagos swap, raising concerns over a “lack of accessible and relevant information” and “lack of an engagement strategy with potentially impacted communities.” The deal happened with no “participation of the people that live in that area, that know that area and preserve it,” said Mejía, who was involved in the complaint.
Patricia Moreno, an environmental activist living on the Islands, told the magazine of the North American Congress on Latin America that local people found out about the swap via social media and that islanders had been excluded from the conversation, and even barred from the presidential launch event.
The secrecy surrounding potential swaps is a necessary feature, according to Ventaja, because any prior knowledge could affect market behavior. He cited a case from 2023, when an Ecuadorian minister mentioned debt-for-nature swaps before the deal was public knowledge, and it moved the price of Ecuador’s bonds.
Transparency continues to be an issue after the deal is inked, campaigners allege. When Debt Justice tried to analyse the eight swaps which have taken place since 2016, there was only sufficient public information on half of them.
Whether the swaps are the best solution to the debt crisis is also questionable, according to critics. IMF research published in 2022 stated that swaps are “generally not the right tool to address unsustainable debt.” A 2025 Debt Justice analysis of four swaps — in Barbados, Belize, Gabon and Ecuador — found that countries’ debt levels were reduced by an average of 3%. By contrast, the same study claimed that recent debt restructurings have, on average, reduced debt by seven times more than debt-for-nature swaps. In the case of a swap agreed by Gabon in 2023, the African country’s national debt actually increased by more than $66m, Debt Justice said.
This tallies with an article published in Marine Policy in September 2025, which found that an earlier swap in the Seychelles failed to reduce the country’s sovereign debt in any meaningful way and also did not secure any new commitments from the government when it came to conservation. “The characterizations of these blue finance transactions in media and in published academic research differ significantly from their reality,” the study concluded.
Ray Hilborn, one of the researchers, also questioned whether the creation of marine protected areas in the Seychelles had increased protection for the area. Fishing activity was simply pushed to other areas, including coastal regions where fishers may be targeting fish that are more vulnerable to overfishing than tuna, he said. “Fish don’t have passports, and they don’t understand borders,” he added.
Simon Stiell, the United Nations climate chief, used his closing remarks at November’s COP30 in Brazil to cast an optimistic light on the role of markets in fighting climate change. “A new economy is rising, while the old polluting one is running out of road,” he claimed. The climate discussions came to a close with an agreement to mobilize $1.3 trillion a year by 2035 to fund climate action, including a boost for adaptation projects and a dedicated Tropical Forests Forever Fund to reward those who prevent deforestation.
With so much new money set to slosh its way into the system, there will be heightened scrutiny of how it will be spent. Economists who have watched the development of complicated financial instruments like debt-for-nature swaps have every reason to be concerned. Carbon offsets — which have been criticized and discredited by environmentalists for years — are set to be expanded into “biodiversity credits,” while “green bonds” and privately financed climate funds are becoming far more common.
These approaches represent a “financialization” of nature which fails to address the underlying causes of the issues, according to their critics. With modern swaps, control over the use of funds is usually held, not by the country itself, but by a specially created vehicle made up of a mix of private and public sector figures. In the case of the Galapagos deal, this vehicle is the Galapagos Life Fund, which has been established in the U.S. state of Delaware. Of the 11 members of its board, five are from the Ecuadorian government and six are from the private and nonprofit sector, potentially giving them the final say over how funds are used.
More broadly, Woolfenden said that tying debt cancellation to climate justice is “deeply problematic” because richer countries get to tell debtor countries where their resources should go.
Mejía, the economist from LATINDADD, has also argued that debt swaps perpetuate a system that uses problem debt as a method of control and can serve as a tool for greenwashing. Instead, she advocates for the Debt for Climate movement, which pushes for richer countries to give developing countries debt relief, which could free up funds for responsible climate action as well as issues like poverty alleviation. Some 80% of climate finance is delivered in the form of loans, according to LATINDADD.
The risks of greenwashing, where businesses make disputable claims as to the environmental credentials of their products, have not gone unnoticed in the finance industry. In a note to investors, reported by Bloomberg, a pair of analysts at Barclays warned such deals could be “misleading” in that the actual amounts freed up for conservation are far exceeded by the cost of servicing the newly restructured loan. “There is a real risk of greenwashing, especially if funds to repurchase debt are supplied by third-party funding itself via ESG-labelled bonds,” the Barclays analysts wrote. The use of the term “blue bonds” could be misleading because investors might assume that all of the funding is spent on environmental projects, they said.
In Gabon, just $67.5 million was allocated to the nature protection fund, with the rest used to repay debt and on fees for financial institutions, according to the Committee for the Abolition of Problem Debt, a French advocacy group. In Belize, the figure was $84 million out of $553 million, and in Ecuador, just $450 million out of $1.6 billion. The Committee said it would be “far better for a state to suspend payment of its debt, audit it and preferably repudiate part of it or, at the very least, buy back part of it and invest the interest saved in ecological and social projects, as did Ecuador in 2008, rather than letting a multitude of intermediaries do it for them and dictate how it should manage its territory and resources.”
The financial sector also takes on “no risk,” according to Ventaja. In the case of the Ecuador swap, guarantees provided by development banks mean they would be reimbursed if Ecuador failed to pay or to meet its conservation commitments. Ecuador, on the other hand, would open itself up to litigation or even default if it does not implement the policies dictated by the Galapagos Life Fund.
With the COP30 commitment on climate finance, more innovative products are likely to emerge, and more debt swaps will be agreed. Ecuador is reportedly pressing on with a swap targeted at the protection of the Amazon in partnership with Leonardo DiCaprio’s conservation NGO. Yet critics keep insisting the deals are a distraction — an excuse for the private sector to deploy complicated financial instruments to give the appearance of action on the climate crisis.
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