Investing in Climate Change

New Funding for Conservation Projects: The Seychelles Turns to Debt Restructuring

Funding for conservation projects can be tough for the governments of smaller countries to find—and these are often the nations that need this funding the most.

While climate change represents a risk to every country, it’s often a more immediate threat to island nations who rely heavily on the ocean for their economic and cultural survival. One such country is the Seychelles, a nation of fewer than 90,000 people spread across more than 100 islands. Surrounded by coral reefs and picturesque beaches, it is highly dependent on fishing and tourism.

To address its conservation funding problem, the Seychelles entered into a deal with a group of creditors known as the Paris Club. These creditors combined impact investing with debt restructuring, providing the country with capital to apply toward marine conservation and climate change mitigation. NatureVest, the investing unit of the Nature Conservancy, helped facilitate the deal.

Under the deal, the Seychelles worked with investors to raise $15.2 million of impact capital and $5 million in grants to buy back its debt and convert it into the Seychelles Conservation and Climate Adaptation Trust (SeyCCAT). Debt payments to the trust repay investors, fund marine-conservation and climate-change mitigation programs, and go into the SeyCCAT endowment to ensure the continued availability of capital for such projects.

The Marine Spatial Plan

The debt swap provided funding for conservation projects and led to the creation of a Marine Spatial Plan, The two-phase plan will ultimately safeguard more than 158,000 miles of the Indian Ocean. In February 2018, the Seychelles announced the completion of the first phase, designating 81,000 square miles—an area roughly the size of Kansas—as Marine Protected Areas. That designation means that all activities in the area must meet specific sustainability standards.

The deal involved input from a wide variety of stakeholders, including private funders such as the Leonardo DiCaprio Foundation, which contributed $1 million for the project, and the Lyda Hill Foundation; the Seychelles government; NGOs such as the Global Environmnental Facility and the United Nations Development Programme; and local groups such as fisheries and tourism businesses.

The second phase of the deal, scheduled to be completed by 2020, will nearly double the size of the protected ocean area.

Beyond the Seychelles

This represents the first time a debt-swap deal has been used specifically for environmental protection. Seychelles president Danny Faure praised the deal in his State of the Nation Address in March 2018, touting that the Marine Spatial Plan “protects our ocean, creates opportunities for investment, and generates more wealth for our economy.”

If successful, the debt-swap deal may prove a model for future projects in other vulnerable countries. Rob Weary, senior director at NatureVest, told the Guardian that it plans to close a $60 million debt deal for conservation in Grenada—and that he anticipates a billion dollars in similar arrangements over the next five years.

“[Large Ocean Developing States (LODS)] like Seychelles are on the front lines of our changing climate, so they must also be at the front line of the solution,” Weary wrote in ImpactAlpha. “This innovative debt restructuring model, with its combination of public and private funds that leverage each other, creates a new model for public/private co-investment in other areas of the world, notably other LODS.”