This Policy Briefing sets out the case for developing a new sovereign debt instrument that links the cost of sovereign debt with success in protecting or enhancing a country’s natural capital, as part of debt restructuring.
“Nature Performance Bonds” (NPBs) be a means to restructure existing sovereign debt around measurable economic, nature and climate outcomes by offering the issuer reductions in coupon payments and principal adjustment in return for the achievement of nature-based outcomes, such as restoring wetlands, protecting forests from encroachment, and reducing threats to wildlife and plant species. There would be no restriction on use of proceeds.
NPBs would be replicable and standardised for scale, evolving beyond the project-specific nature of much green finance to date, and making them attractive to the private sector.
The ultimate outcome would be reduced debt repayments, improved nature and climate outcomes, lowered country risk and improved access to capital, and a country’s increased attractiveness as a long-term investment destination.
A technical paper is also available which provides more detail on the proposal.
Finance for Biodiversity (2020) Recapitalising Sovereign Debt Why Nature Performance Bonds are needed now. Finance for Biodiversity Initiative