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Debt-for-Climate Swaps: Background Note

Background note on debt-for-climate swaps

As countries begin negotiations to restructure sovereign debt to address the COVID-19 pandemic and wider debt crisis, climate protection should be at the center, as way to ensure debt sustainability, to deliver more resilient societies, and to inoculate the economies of the world by diminishing economic risk of a climate crisis.

After a series of consultations with stakeholders and decisionmakers, IGSD has identified the following strategies for developing a framework for debt-for-climate swaps as a way to implement, at scale, climate mitigation strategies consistent with a 1.5°C pathway.

The strategies are:

  • to create a High Level Task Force to raise awareness and political visibility,
  • to engage high level champions from States (creditors and debtors), as well as international financial institutions,
  • to identify climate protection options for debt swaps,
  • to facilitate at least one debt-for-climate swap to gain implementation experience,
  • to strengthen and expand debt frameworks for debt swaps, including the U.S. Tropical Forest and Coral Reef Conservation Act and the G20 Debt Service Suspension Initiative,
  • to encourage China and India to undertake debt climate swaps, and
  • to engage with sovereign debt rating agencies such as Moody’s to explore how debt swaps can be structured to work in favor of sovereign credit ratings.