L&G commits $1 billion to ‘debt-for-nature’ swaps
Debt-for-nature swaps aim to reduce interest payments so governments can spend more on conservation, but the market has faced a relative drought for some time
Britain’s biggest asset manager, Legal & General, has committed up to $1 billion over the next five years to become a cornerstone investor in a major new wave of “debt-for-nature” swaps, it has told Reuters.
Debt-for-nature swaps aim to reduce interest payments so governments can spend more on conservation, but the market has faced a relative drought for some time.
UK fund giant L&G, which backed Ecuador’s record-setting swap for its Galapagos Islands in 2023, as well as deals in Belize and Gabon, is putting its institutional clout behind a broader push to revive and grow the market.
The effort is spearheaded by specialist firm Enosis Capital which has also enlisted major environmental organisations and insurance giant AXA XL to provide political risk cover often crucial to these kinds of transactions.
This will give us the ability to be the cornerstone investor in the planned set of debt swaps, or hopefully in some circumstances, solely fund the transactions, said Jake Harper, senior investment manager at L&G.
The $1 billion commitment will nearly double L&G’s investment in nature conservation and sustainable development in emerging markets to $2.4 billion.
It will also make the firm a supersized presence in an experimental corner of the debt market that has seen only around $6 billion worth of debt-for-nature deals done over the last five years.
What we’re trying to solve is how to make these transactions quicker, and that is what hopefully this will achieve, Harper said.
Debt swaps free up money for conservation by buying back expensive government bonds or loans and replacing them with cheaper ones thanks to a “credit guarantee” that protects investors against future political upheaval.
The ecological stakes could barely be higher.
L&G’s Harper said some of its $1 billion could also support emerging offshoots such as debt-for-education or debt-for-food swaps.