Multilateral banks launch ‘Disaur’ task force on natural debt at COP28
MidLand, Jakarta – The world’s major multilateral development banks will launch a global “task force” at the climate summit COP28 in the next days. This is to increase the number and scale of “debt-for-nature” trades that countries can undertake.
Debt-nature trades, i.e. debt cuts in developing countries in exchange for the protection of important ecosystems. The project is attracting more and more attention following recent successful examples in countries such as Belize and the Galapagos Islands.
The creation of this task force is the most significant step taken yet to indicate that the global group of multilateral lenders, who together hold trillions of dollars in power, will significantly increase their support for these agreements.
“Our motivation for being part of this task force is to advance debt-for-nature trading and related instruments,” said Hassatou Diop N’Sele, vice president of finance and chief financial officer of the African Development Bank. Reuters after previously reporting on the plan.
“We see them as powerful tools,” he added, citing their ability to help address climate change while providing debt relief.
Four separate sources involved in the plan, which will be officially announced on Monday during the “financial day” of the COP meeting, said the new group will be called “Task Force on State Financing for Sustainability-Related Nature and Climate”.
The meeting will initially be led by the Inter-American Development Bank (IDB) and the International Development Finance Corporation (DFC) of the United States, three sources added. Both financiers have been involved in all recent trades which also include Barbados and, more recently, Gabon.
The institutions have until Friday to confirm that they will join, but the institutions that are expected to join also include the World Bank, the European Investment Bank (EIB), the Asian Development Bank (ADB), the Asian Development Bank Beijing-based Infrastructure Development and a number of other institutions. . the source added.
None of the other banks confirmed their participation when asked by Reuters. But they have all pledged in recent weeks and months to step up their environmental efforts.
MDBs play a very important role in debt-for-nature exchanges because they provide credit guarantees and/or insurance against political risks that make MDBs sustainable.
Announcement
Simply put, this swap is done by purchasing a country’s bonds, often at a discount, and then replacing them with cheaper eco-labeled bonds that come with special MDB guarantees.
This increase reduces the risk of default in the eyes of investors, thus lowering costs. Some of these savings – though not all, according to critics – are then channeled toward conserving coral reefs, rainforests or other valuable habitats that are critical in the fight against climate change and biodiversity loss.
IMPORTANT MILESTONE
The new task force is expected to begin work early next year and will initially focus on an “inventory” of agreements reached so far, as well as the “tools” that countries and multilateral organizations will need to pursue trade.
The Nature Conservancy, a US-based NGO that has been involved in many of the recent deals and will also be part of the new task force, estimates that a third of global emerging market sovereign debt is worth $2.2 trillion, or $800 million. dollars. billion, potentially “ripe” for an exchange.
Countries considered prime candidates are Sri Lanka and Zambia, both undergoing debt restructuring, as well as Kenya, Tanzania, Colombia and a number of other Amazon countries.
If the BMDs can work together to provide the right guarantees. Officials are optimistic: Some of these deals could be worth $10 billion, 10 times larger than the $1 billion deal reached Ecuador this year for the Galapagos Islands.
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