New “nature performance bond” to tackle twin sovereign debt and biodiversity crisesOctober 02, 2020
A new financial instrument developed by the Finance for Biodiversity Initiative (F4B) could help tackle a growing sovereign debt crisis in developing nations while protecting sensitive ecosystems and biodiversity.
The new instrument – known as a “nature performance bond” (NPB) – complements traditional debt instruments, which collect interest until a fixed maturation date, with a performance scheme focused on measurable economic, nature and climate outcomes. Under the terms of an NPB issuers receive relief on both interest and principal as they achieve agreed nature-based outcomes, such as protecting forests, restoring wetlands, and reducing threats to wildlife. There would be no restriction on the use of proceeds, although a portion could be invested to achieve the committed nature performance outcomes.
NPBs can help to solve the twin crises of swelling sovereign debt and rampant biodiversity loss by creating a bridge between providers of financial capital and biodiversity-rich countries most in need of debt relief. Many of these nations have seen a disproportionate impact from COVID-19 on their economies.
Policy Briefing here.
Technical paper here.