Inside Climate News’ Katie
Surma and Georgina Gustin explore the idea of debt-for-nature swaps and their
potential applicability for countries to get debt servicing relief from China,
that is, if China were interested in such deals that resemble carbon offsets.
Corporate conservation projects have been popular for ESG and emissions
reduction goals. Such corporate projects are well established, and I wrote about them this past April. I like to
refer to such conservation projects as environmental benefits trading.
The authors note that
debt-or-nature swaps have been explored since the 1980s. They note that Ecuador
was recently able to refinance some of its highest-interest debt through
conservation projects. They also mention ongoing projects financed by banks and
private creditors for the Seychelles and Barbados. They note that academics and
policymakers, including some from China, are considering such projects.
“Through its $1.3 trillion Belt and Road Initiative,
Beijing has become the world’s largest bilateral creditor by financing mines,
ports, power plants and infrastructure in countries across the developing
world. China’s opaque lending practices make it difficult to know exactly how
much these countries owe, but experts say it could exceed hundreds of billions
of dollars.”
The graph below shows
developing countries where debt servicing costs are double those of new
lending. Much of this debt is now due to China.
They note that it is
uncertain whether China will embrace conservation projects in exchange, but
they should perhaps address the environmental impacts they have caused. One
problem is perhaps how projects should be compared and selected in ways that
are most fair.
“Supporters of Chinese participation in debt-for-nature
swaps say the model offers a way to relieve some of that burden while
redirecting Beijing’s influence toward repairing the landscapes its projects
damaged.”
“Proponents view these deals as win-wins, but some
environmental economists and scholars remain deeply skeptical. They note
Beijing’s reluctance to write off debt for fear of triggering demands for
similar treatment from other borrowers, and say other creditors like
multilateral development banks and private debt holders—which, collectively,
hold the majority of most developing countries’ external debt—should be first
in line to take a loss.”
The Chinese Communist Party is a closed
system, and it is hard to know how they will respond to calls for such deals.
Inside Climate News (ICN) asked several Chinese Ministries, embassies for
information, but none responded.
China, however, made a deal
with Egypt in 2023 to swap some of its $8 billion debt to China for
interest-free loans for a number of projects, from renewable energy to
healthcare.
Below is a graphic showing
environmentally vulnerable countries heavily indebted to China. The graphic is
derived from Blake Alexander Simmons and Rebecca Ray of Boston University’s
Global Development Policy Center.
Simmons and Ray explain
debt-for-nature swaps as follows:
“Traditional ‘debt-for-nature swaps’ are an
incentive-based solution for achieving conservation targets in highly indebted
countries, where organizations and/or government creditors negotiate with
government debtors to cancel or reduce debts in return for binding commitments
to protect threatened species, reduce deforestation, or achieve other
environmental goals, often through the creation of protected areas.
Historically, these swaps have typically been led by large organizations, like
The Nature Conservancy or World Wildlife Fund, which targeted relatively modest
debts to increase protection in nationally significant hotspots of conservation
concern.”
Christoph Nedopil Wang, a
China expert and advocate for debt-for-nature swaps, notes that several
countries have high debt to China and are often barely able to pay their bills.
Debt restructuring would benefit them, as would conservation. The idea is
simply to redirect some of the debt to conservation. China gets “paid” with a
better international reputation for environmental compliance, conservation, and
climate tallies in a voluntary environmental benefits market, whether real or
imaginary. ICN focuses on two countries, Ecuador and Pakistan, that could
benefit from such deals. Ray notes that a debt swap in Pakistan could be used
to help the flood-prone country adapt to increasingly extreme weather, and one
in Mongolia could offer an opportunity to reforest along the Chinese border,
which would help mitigate sandstorms that can reach Beijing. The U.S government
has pulled back strongly against development aid with the tragic shutdown of
USAID, and there is a need for development financing to fill that vacuum.
Politicians might see it as a way for China to wield soft power in a more
responsible way than it has up to now. ICN notes:
“…around 88 percent of the world’s most endangered
ecosystems lie in debt-distressed nations.”
Malambwe Kilolo, an economist
with the U.N. Economic Commission for Africa who has advised governments on
debt-swap proposals, noted that many African countries want to move on from
just mining and begin minerals refining and processing, and manufacturing. For
that, they need investment but also power.
“With roughly 43 percent of Africans lacking access to
electricity, many households rely on firewood and charcoal for cooking and
heat. “People need to be incentivized not to cut trees—to preserve and conserve
green spaces,” Malambwe Kilolo said. “If there is no economic benefit, then
what’s the point of doing conservation?”
Ecuador is another country
indebted to China. It is a country with a high level of biodiversity, and the
country wants to leverage preserving that biodiversity to restructure its debt
to China. China has agreed to one deal to delay repayment
deadlines and lower interest rates. Debt-for-nature deals, including the one in
Ecuador, have benefited from U.S. institutions such as the U.S. International
Development Finance Corp., providing political-risk insurance.
President Xi has declared he
wants to develop an “ecological civilization,” which includes conservation.
China has done many domestic conservation projects, such as reforestation,
flooding mitigation, land conservation, and mitigation of desertification,
where the Gobi Desert has expanded. The air is cleaner in Beijing and some
other cities than it used to be. However, one could also say that China has
outsourced a fair degree of its environmental impact, often to the same low-income
countries that are indebted to it. They could even be accused of resource
imperialism. It remains to be seen whether China will extend that ecological
civilization to its resource suppliers. This is one way that could happen.
Though China gives much less than the U.S. in foreign development aid, even
after the dismantling of USAID, it is beginning to pledge funds for
biodiversity in developing countries.
“Through the Kunming Biodiversity Fund announced at the
2021 summit, China has pledged more than $230 million to help developing
countries meet their biodiversity goals. Coupled with a rapidly expanding web
of technical exchanges, training programs and environmental assistance, China
has cultivated what scholars describe as “green soft power”—a strategy that
bolsters its influence in the Global South.”
There is also the ability to
negotiate and cooperate with the local people near projects and indigenous
populations to mitigate environmental issues, ensure compliance, and build
trust. More transparency about potential and real environmental impacts is also
often a need that would aid the trust-building process.
According to the UN
Development Programme:
“A debt swap can become a commercial opportunity for
creditor institutions holding sovereign debt when the value of the sale of the
debt position through buy-back or assumption by a third party is higher than
the value of the debt recorded in the balance sheet.”
According to a November 2022
report by GFC Finance and Biodiversity Research Group, debt restructuring
usually takes the following form, but below that are other forms based on
specific details and capabilities of each country.
Below, from the same report,
is a table of challenges and lessons to be learned about debt-for-nature swaps,
followed by a list of recommendations for the Chinese government and banks.
References:
Countries
Want Debt Relief for Conservation. Is China Ready to Play a Role? “Debt-for-nature”
swaps are helping some lower-income countries increase conservation. The
world’s largest nation-state creditor has the leverage for deals—if it chooses
to use it. Katie Surma and Georgina Gustin. Inside Climate News. December 21,
2025. Countries
Want Debt Relief for Conservation. Is China Ready to Play a Role? - Inside
Climate News
DEBT
FOR NATURE SWAP: A Green Finance Tool for Dealing with Overseas Sovereign Debt:
A Commissioned Report for GFC Finance and Biodiversity Research Group. Paulson
Institute. Eric Swanson, Rose Niu, and Li Zhu. Green Finance and Development
Center, Fudan University. Christoph Nedopil Wang and Mengdi Yue. November 2022.
GFC-2022_China-Debt-for-Nature-Swap-Report_EN.pdf
THE
BUSINESS CASE FOR DEBT- FOR-DEVELOPMENT SWAPS FOR CHINESE INSTITUTIONS. UNDP
China | Working Paper | June 2025. the_business_case_for_debt-for-development_swaps_for_chinese_institutions.pdf
Debt
Swaps: How China Can Create Opportunities for Financial and Environmental
Stability. Blake Alexander Simmons and Rebecca Ray. Boston University. Global
Development Policy Center. January 29, 2021. Debt
Swaps: How China Can Create Opportunities for Financial and Environmental
Stability | Global Development Policy Center
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