Blue bonds are a kind of debt that helps countries preserve natural resources : The Indicator from Planet Money Low- and middle-income countries are facing the worst consequences of the climate crisis, and rising global interest rates are making it harder to repay their debts. What if there was a way to solve both problems at once?For sponsor-free episodes of The Indicator from Planet Money, subscribe to Planet Money+ via Apple Podcasts or at

Blue bonds: A market solution to the climate crisis?

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Carlisle Bay is a natural harbor on the west coast of Barbados, with calm waters and soft, sandy beaches. It's where Sherry Constantine learned to scuba dive by exploring the bay's six shipwrecks.

SHERRY CONSTANTINE: Part of my diving experience was actually to go on those different wrecks and to see the turtles and the fish and the sponges and the lobsters, etc., on those rigs - so a very fun place.

WOODS: Sherry is the director of the Eastern Caribbean program for The Nature Conservancy, which is an environmental nonprofit. She's seen firsthand how climate change has eroded coastlines and bleached coral reefs. This is when warmer temperatures cause corals to expel the algae that live there, and that turns the corals a ghostly white color.

CONSTANTINE: As a marine biologist, it hurts my heart because I'm like, OK, wow, these species are so critical. They're so vital to who we are as a people - to our nations, our economies. And so it's sad to see when we have beached corals on a reef.


In September, Barbados committed $50 million toward ocean conservation. Sherry and The Nature Conservancy helped the country get the money, but not through grants or donations. Instead, they helped Barbados refinance its government debt with something called a blue bond.



WOODS: And I'm Darian Woods. All this week at THE INDICATOR, we're looking at economic solutions to the climate crisis. And on today's show, we will dive into the world of blue bonds, and we'll see this odd couple - Wall Street and environmentalists - teaming up to tackle climate and government debt at the same time. I guess these are kind of, you know, strange bedfellows.

WONG: Strange seabedfellows (ph)?

WOODS: Seabedfellows.


WONG: Climate and debt are deeply intertwined problems. Last month, the United Nations identified 54 countries in need of urgent debt relief. The UN said about half of those countries are also some of the most climate-vulnerable nations in the world.

WOODS: These countries don't have the money to service their debt and invest in climate-related infrastructure. Daniel Munevar is an economic affairs officer at the U.N. Conference on Trade and Development.

DANIEL MUNEVAR: Climate change not only is affecting negatively the income of countries, but it's also imposing additional cost as a result of extreme climate events. Because of these linkages, the climate crisis - it's also making the debt crisis worse.

WONG: The outlook has only worsened with the pandemic, the strong dollar and rising interest rates. When governments borrow money in international markets, they usually borrow in U.S. dollars. So a strong dollar means countries have to generate more revenue in their local currencies to keep up with debt payments, but the pandemic wiped out crucial tourism revenue for many countries.

WOODS: And now, governments are faced with swelling debt loads at the same time interest rates are going up around the globe. So these higher borrowing costs have effectively shut out many emerging economies out of international markets.

WONG: At The Nature Conservancy, Sherry Constantine and her colleagues wanted to tackle the climate and debt problems together, so they turned to something called a debt-for-nature swap. Basically, they would help governments swap old debt for new debt with lower interest payments. This debt conversion would then free up money for conservation efforts.

CONSTANTINE: We don't want to just do a one-off project. We want transactions that are transformative, and that calls for long-term, lasting change. And so the debt conversion was one of the ideas that we had in terms of trying to create that long-term funding stream.

WOODS: These debt-for-nature swaps were briefly in vogue in the late 1980s and early 1990s after the Latin American debt crisis. Then, environmental groups helped countries like Bolivia and Ecuador get debt relief in exchange for conservation commitments.

WONG: Daniel Munevar at the U.N. studies debt in developing countries, and he says the increasing concern about the overlapping debt and climate problems has made these kinds of deals trendy again.

MUNEVAR: So debt swaps are being seen as this wonderful, magical tool that could solve both problems at the same time.

WONG: The Nature Conservancy revived the debt-for-nature swap in 2016 with a deal in the Seychelles. It did another swap in Belize last year and then a $150 million deal in Barbados this year. The deals all involve something called blue bonds because the countries promise to protect at least 30% of their ocean areas.

WOODS: And so here's how the Barbados debt swap worked. First, the government contacted investors holding the old debt. Then, they offered to buy back some of those bonds. In Wall Street lingo, this is called a tender offer. Slav Gatchev heads the sustainable debt team at The Nature Conservancy, and he says that bond holders had two choices.

SLAV GATCHEV: You have the option of doing nothing, in which case you will continue to hold your position. Or you could say, you know what? I kind of like this idea - right? - of being able to tender my bond now and get some liquidity - basically, to get cash.

WONG: Slav says the government got a good response. Lots of bondholders wanted to get cashed out. Now, Barbados had to come up with the money to pay them.

GATCHEV: Just like the homeowner refinancing their house, if you go to your current bank and say, hey, I want to pay you back, the bank will say, wonderful. Where's the cash? Show me the money.

WOODS: And that's where The Nature Conservancy comes in. They paired up with Wall Street banks and another group, which was the Inter-American Development Bank, and they sold new bonds to investors called the blue bonds. And the proceeds of these blue bonds were then used to cash out the old bondholders.

WONG: Now, Barbados is on the hook for this new debt, but the new debt has much better terms.

GATCHEV: Our blue bond that we arranged with the help of Wall Street banks - that's the - kind of the real financial alchemy here.

WOODS: The financial alchemy was that The Nature Conservancy basically stood in for Barbados. Investors were told, pretend like The Nature Conservancy is borrowing this money. Use The Nature Conservancy's credit rating.

WONG: The nonprofit is considered a very safe borrower, so The Nature Conservancy was able to get a lower interest rate for the blue bonds than what Barbados would have gotten if the government had tried to borrow the money itself. The Nature Conservancy and the Inter-American Development Bank also took a risk. They agreed to guarantee the debt - stepping in if Barbados can't make the payments.

WOODS: All told, the debt swap generated $50 million in savings for Barbados. This is the money that the country is using for large-scale, long-term projects to protect its oceans.

WONG: The Nature Conservancy believes these debt-for-nature swaps can be scaled up and used more widely. Daniel Munevar over at the U.N. Conference for Trade and Development is a little more cautious. He says, picture the world like a big apartment complex, where each unit represents a country. Right now, the entire building is engulfed in flames, and the debt swaps are like small home fire extinguishers.

MUNEVAR: If you have a high degree of climate vulnerability and have a high risk of debt distress, you need to call the fire brigade. We're not going to be able to tackle this if we keep pretending that the home extinguishers are enough.

WOODS: Slav at The Nature Conservancy acknowledges that debt swaps are just one tool meant to complement traditional philanthropy, like grants and donations. But he said the enormity of the climate crisis means financial markets have to get involved in fixing it. And so these debt swaps are designed to attract investors of all kinds, whether they like the low risk or they have sustainable investing goals.

WONG: Which side are you appealing to - kind of their profit-seeking side or their climate conscience?

GATCHEV: Ideally, it's both, right? We're primarily appealing to the rational side of investors. But, of course, we love the fact that people see these instruments as aligned with their green investment targets, and we want to see more teeth to those targets.

WONG: Mia Mottley, the prime minister of Barbados, praised the blue bonds as a game changer, but she wants even more action. She's long made the case that the intertwined climate and debt crises faced by countries like hers are new forms of colonialism.


PRIME MINISTER MIA MOTTLEY: This is the COP that needs action.

WONG: Here she is at the opening of the ongoing COP27 summit in Egypt.


MOTTLEY: This world looks still too much like it did when it was part of an imperialistic empire.

WOODS: At COP27, Mia Mottley is pushing for change at the International Monetary Fund and the World Bank. She wants them to prioritize funding for damage caused by climate change and to ease the burdens of some loans. And leaders of wealthy nations are paying attention.


WONG: This episode was produced by Nicky Ouellet and engineered by Gilly Moon. Dylan Sloan checked the facts. Viet Le is our senior producer. Kate Concannon edits the show, and THE INDICATOR is a production of NPR.


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