Financing Ocean Conservation Through Innovative Solutions: Debt-for-Nature Swaps and Indonesia’s Case Study
As climate change and biodiversity loss crises escalate, countries in the Global South are also facing mounting sovereign debt. This financial strain often sidelines crucial investments in building climate resilience and conserving biodiversity. That’s where debt-for-nature and debt-for-climate swaps come in: smart financing mechanisms that help countries alleviate debt burdens while unlocking funding for nature. Notably, earlier this year, Indonesia closed a landmark debt swap focused on coral conservation.
To explore this mechanism, its structure and potential impact, the Nature Tech Collective hosted Sejal Patel, Senior Economist at the International Institute for Environment and Development (IIED), and Alexandre Portnoi, Senior Legal Advisor at Conservation International which spearheaded the Indonesia transaction.
How are national debt, climate and nature crises linked?
When climate disasters strike or natural resources are depleted, economies suffer, making it even harder to pay back debts. This creates a negative cycle where debt exacerbates the climate and nature crises, and environmental threats worsens debt, leaving countries with wide funding gaps for climate and biodiversity.
Debt distress happens when a country is struggling or unable to meet its debt obligations. It has become a major challenge for many low-income, often climate-vulnerable countries around the world, which has the effect of limiting public funding for crucial areas like climate adaptation and nature conservation.
According to the International Monetary Fund (IMF) and the World Bank, over a half of these nations are at high risk of or already in debt distress, a figure that has doubled since 2015.
Figure: Total external debt stocks, developing countries, in $T, 2004-2023
Source: UN Trade and Development (UNCTAD)
What are debt-for-climate and debt-for-nature swaps?
Debt swaps are financial arrangements where a portion of a country’s debt is restructured, reduced or cancelled. In return, the debtor country (the one owing money) commits to investing the money saved (or related amount) into domestic environmental projects, such as climate resilience or nature conservation efforts, including protecting marine ecosystems.
This idea first emerged in the late 1980s to address the debt crises in Latin America while funding rainforest conservation work. The environmentalist Thomas Lovejoy pioneered the first swap between Conservation International and Bolivia.
After a period of reduced activity due to broader debt relief initiatives, swaps are seeing a resurgence at higher amounts, encompassing a range of climate and nature goals.
Figure: Value of treated debt in previous debt for nature and debt for climate and nature swap transactions
Over time, the debt-for-climate and nature swap model has also evolved to include multiple parties working together to repurpose a portion of sovereign debt into a sustainable funding stream for climate and nature.
How are these swaps structured?
There isn't a standard approach for a national debt swap; it's a flexible mechanism adaptable to different situations. Swaps could be structured as a direct agreement between a debtor country and a single creditor or as a multiparty one involving other stakeholders (typically NGOs, development financial institutions and even private investors).
Under the arrangement, the debt is restructured, reduced or cancelled freeing up funds for the debtor nation to invest in agreed-upon climate or nature projects. GCF’s report on “Debt for Climate Swaps: Exploring Avenues and Opportunities” (October 2024) presents detailed analyses for different structures, including advantages, considerations and examples for each.
Regardless of the specific structure, the core principle is that funds previously earmarked for debt payments abroad are redirected towards in-country spending on climate and/or nature, often through trust funds overseen by multiple stakeholders. They are integrated into national budget systems, and set up regular, predictable flows for climate and/or nature investments. This can build government capacity and make climate and conservation planning more sustainable over time.
Good practices drawn from development aid could ensure transparency, alignment with national priorities and empowerment of local communities and actors during the implementation of swaps. The IIED’s recommendations on “Aligning Debt Relief for Climate and Nature with the Principles of Effective Development Cooperation” (February 2025) serve as a valuable reference for these good practices.
What is the potential of nature for debt swaps?
Institutions like the World Bank, the IMF, and the Green Climate Fund (GCF) are also starting to support these mechanisms. Should more creditors from Europe, Japan, and multilateral institutions step up, the outcome could be transformative.
A study by IIED on “Averting the Crises: How a New Approach to Debt Could Raise US$400 Billion for Climate and Nature” (July 2022) estimated that swaps could mobilise up to $105 billion for climate and nature from debt relief based on 2022 debt stocks, and an additional $329 billion in new debt issuances.
How could swaps make a real impact on ocean conservation? A case study from Indonesia
The US-Indonesia debt swap closed earlier this year was the first transaction exclusively focused on coral reefs under the US Tropical Forest and Coral Reef Conservation Act (TFCCA), a program of the US government offering eligible developing countries options to relieve debt owed for the purpose of forest or coral reef conservation.
In this case, the US government forgave $35 million of principal and interest owed by Indonesia, while Indonesia committed to investing the same amount into a dedicated conservation trust fund over the next 15 years.
The arrangement also involved other parties, including international NGOs (Conservation International, The Nature Conservancy), and local Indonesian organisations (Konservasi Indonesia and Yayasan Konservasi Alam Nusantara) managing the fund and grant process, demonstrating the power of a multi-stakeholder approach to achieving conservation impact.
Photo Credit: Alexandre Portnoi
What activities will benefit from the Indonesia transaction?
The dedicated conservation trust fund specifically targets globally significant coral reef ecosystems in two vast marine areas of the Coral Triangle: the Bird's Head Seascape and the Sunda Banda Seascape. These regions, considered a global epicenter of marine biodiversity with the greatest richness and abundance of coral reefs on Earth, are home to over 600 species of hard coral (or 75% of the world’s total), and thousands of reef fish species.
The fund will support activities such as sustainable livelihoods, the creation and management of parks, reserves and marine protected areas, the implementation of science-based reef and ecosystem management practices, capacity building and research, including in relation to the medicinal potential of reef flora and fauna.
Non-profit organizations, social enterprises, research institutions and other entities might be able to access these funds through grants and financing schemes which are currently under development.
Conclusion: What does the future hold?
Debt-for-nature and climate swaps are re-emerging as a relevant mechanism to tackle the intertwined crises of debt, climate, and biodiversity loss. While not a singular solution, they offer a way to redirect considerable financial flows toward protecting and regenerating nature, particularly critical ecosystems like coral reefs as demonstrated by Indonesia's pioneering coral reef conservation swap.
With appropriate governance structures ensuring local participation and alignment with national priorities, these mechanisms can help reshape the way ocean conservation is planned and funded on a national level, making sure that economic growth integrates a sustainable blue economy strategy and action plan.
About the author
Amal Ketata, Founder at Nui
Amal is a seasoned finance professional on a mission to scale blue finance solutions. Leveraging a decade of experience in investment banking and at tech startups leading capital transactions and strategy, she transitioned to nature finance with a focus on the ocean.
Through Nui, Amal develops innovative and sustainable financing mechanisms, from monetization strategies to fundraising, that enable coastal resilience and marine regeneration initiatives, both for-profit and non-profit, to unlock private capital and expand their impact.At NTC, she leads the Ocean Tech programming focusing on a knowledge sharing platform for the ocean tech community within and beyond NTC to find inspiration and support.