Nature round-up: Ecuador completes largest debt-for-nature conversion

Australian Government details funding for Nature Positive Plan; report explores EM banks’ exposure to nature loss through lending portfolios.

Ecuador has completed the world’s largest debt-for-nature conversion, which will allow the South American nation to allocate resources for long-term marine conservation in the Galápagos Islands.

Under this mechanism, a country will write off some of its sovereign debt in return for local investments in environmental projects.

Announced on Tuesday, the Ecuadorian government in partnership with the US International Development Finance Corporation (DFC), Inter-American Development Bank (IDB), Credit Suisse, Oceans Finance Company (OFC) and the Pew Bertarelli Ocean Legacy closed a $656 million marine conservation-linked bond.

The Galápagos Marine Bond was used to finance a debt conversion for Ecuador, exchanging $1.63 billion of Ecuador’s international bonds for a $656 million loan.

IDB is providing a $85 million guarantee, while $656 million of political-risk insurance for the loan is coming from DFC.

It is estimated the debt conversion will generate an estimated $323 million for marine conservation in the Galápagos Islands over the next 18.5 years.

IDB president Ilan Goldfajn said: “Not only is this the largest operation of its kind, but it is the first time that a multilateral institution is combining guarantees with political-risk insurance to mobilise resources from different actors towards conservation.”

Debt-for-nature swaps have also popped up in Belize, Barbados and the Seychelles in recent years; in April, a local news outlet reported that Sri Lanka is engaged in “preliminary work and consultation process with all stakeholders” regarding one.

Australia injects funds to Nature Positive Plan

In related news, Australia has said it will provide A$214 million ($145 million; €132) over the next four years to deliver its Nature Positive Plan, which was initially announced in December.

According to Tuesday’s budget, A$121 million has been earmarked to establish Environment Protection Australia (EPA), a new regulatory body to “enforce environmental laws and restore confidence in Australia’s environmental protection system”.

“The EPA will be a tough cop on the beat,” Tanya Plibersek, minister for the environment and water, said. “It will transform our system of environmental approvals. It will be transparent and independent. It will make environmental assessments, decide project approvals and the conditions attached to them and it will make sure that those conditions are being followed on the ground.”

Alongside the EPA, A$51.5 million will be used to establish a environmental data body, Environment Information Australia, which will provide an authoritative source of high-quality environmental information. Another A$7.7 million will go towards the continued development of a “Nature Repair Market”, which it is hoped will drive an estimated $137 billion of private sector investment into restoring and protecting nature.

The Australian government also said it will also “expand the eligibility criteria” when it comes to funding programmes around carbon and biodiversity markets to include all landholders, which would cover First Nation groups too.

EM banks exposure to nature loss explored

A study by the World Bank has found that emerging markets banks allocate around half of their credit portfolio to firms whose business processes are highly or very highly dependent on one or more “ecosystem service”.

The paper measured the potential exposure of the banking systems in 20 emerging markets – including Indonesia, Mauritius, Brazil and Malaysia – to nature loss through their lending portfolio.

Researchers used the ENCORE database, which provides a list of 86 business processes that directly depend on 21 ecosystem services, as well as publicly available country-level data on bank credit to non-financial firms as of end-2020.

Alongside a high exposure to nature loss, the research found that the highest dependencies on ecosystem services across countries tended to be on climate regulation and flood and storm protection, “indicating the interconnectedness of climate change and nature loss”,

Finally, high dependencies on ecosystem services was concentrated in few sectors, with construction and real estate explaining more than 20 percent of all banking sector dependencies.

New biodiversity tools announced

On Wednesday, S&P Global’s sustainability offering – S&P Global Sustainable1 – launched a new dataset to help companies, investors and other stakeholders understand their impact and dependency on the natural world and develop strategies to create more resilience with respect to the ecosystems they depend on.

The Nature and Biodiversity Risk dataset covers more than 17,000 companies and over 1.6 million assets.

By applying this new dataset to the S&P 1200, S&P Global Sustainable1 found that 85 percent of the world’s largest companies have a significant dependency on nature across their direct operations, while nearly half have at least one asset located in a key biodiversity area, “that could be exposed to future reputational and regulatory risks”. 

Finally, sustainability tech platform Clarity AI and impact data specialist GIST Impact have partnered to develop a biodiversity impact assessment product to help clients identify and measure their exposure to companies that have a negative impact on biodiversity.