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MEMO SERIES: Environmental Finance in the Debt
and Ecological Crises

A series of briefings looking at financial mechanisms that (in theory) support climate action and biodiversity conservation in the midst of a new debt crisis.

Memo 1: Debt for Environment Swaps

by Patrick Bigger

December 2022

Debt swaps aim to alleviate these pressures by offering some level of debt relief in return for commitments to devote freed up financial resources toward achieving environmental objectives. 

  • Debt for Environment Swaps are a tool meant to reduce Global South countries’ debt burden to enable increased investment in environmental priorities like biodiversity conservation or climate change adaptation.

  • Debt for Environment Swaps have a long history dating back to the 3rd World Debt Crisis and can be a useful stopgap measure to contend with debt distress and environmental degradation in limited ways.

  • These swaps have a number of drawbacks and are not a substitute for a new, comprehensive global debt architecture or increased direct funding for environmental priorities flowing from North to South. 

Memo 2: Green Bonds

by Patrick Bigger

February 2023

Green Bonds have been promoted as a financial tool for development banks and countries across the Global South to access money for climate action. But as the new Global South debt crisis gathers pace, green bonds have contributed to difficult fiscal conditions in a number of countries. Debt, including green bonds, will continue to be important to facilitate transformative climate investment but it must be mobilized in less-extractive ways that allows the costs of debt service to be borne by those who contributed most to climate breakdown.  

  • The structure of the global economy creates borrowing conditions for the Global South that are predatory and extractive, but access to debt is critical to pay for environmentally and socially beneficial projects.

  • Green bonds are a key source of financing for climate-related spending; virtually identical to any other kind of bond, they have been widely issued by countries and multilateral development banks.

  • Amid the Global South debt crisis and the ecological crisis, continuing to pile on debt-- either through issuing new sovereign debt or rent-seeking on lending by multi-laterals is hardly a just response to either crisis.

Memo 3: Blended Finance

by Patrick Bigger

March 2023

Blended finance has become a dominant paradigm in development and environmental finance over the last 15 years. The main idea is that scarce public resources will never be sufficient to achieve critical social and environmental aims, so private capital must be attracted to fill the gaps. Using financial mechanisms that reduce investor risk while boosting their profits, the blended finance approach has grown alongside the huge increase in Global South debt. The growth of blended finance is troubling, but shows no sign of slowing down at critical international institutions.

  • Many multilateral development banks and Global North countries’ bilateral aid and development agencies have adopted blended financial structures as key parts of their toolkit; the World Bank has played a central role in this shift toward Development actors acting as heralds of capital. 

  • The deployment of blended finance approaches ballooned alongside the surging growth in Global South debt that has become a humanitarian and ecological crisis.

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