(Bloomberg) — Citigroup Inc., BNP Paribas SA and Standard Chartered Plc are among the banks looking into providing financing for a new $15 billion program to protect Indian ocean habitats.
The banks, which also include HSBC Holdings Plc, Societe Generale SA and Rothschild & Co., have discussed funding possibilities in the form of bonds and so-called debt-for-nature swaps, according to Thomas Sberna, coastal and ocean resilience head for east and southern Africa for the International Union for Conservation of Nature, which is one of the organizations backing the initiative.
The private capital would feed into the Great Blue Wall initiative, which aside from the IUCN is also backed by the United Nations. The project has already raised $100 million. Sberna said a further $200 million will be announced soon in the form of a so-called project preparation facility.
The arrangement is something the banks “really want,” Sberna said in an interview. “It’s very much a blended finance kind of approach,” he also said, referring to a model that combines public and private capital to support sustainable goals.
A spokesperson for HSBC said the bank isn’t currently working on a specific transaction, but is exploring ways to provide capital support in dialogue with groups such as IUCN. Spokespeople for the other banks declined to comment.
As much as a fifth of the $15 billion will be raised through debt-for-nature swaps, Sberna said. The instruments allow sovereign issuers to refinance existing debt in exchange for nature conservation pledges. The first beneficiaries are likely to be Kenya, Tanzania and Mozambique, he said.
The program, which was first announced at the COP26 climate summit in Glasgow in 2021, is the latest to tap debt-for-nature swaps to fund ocean preservation and sustainable development.
Deals arranged by Credit Suisse and Bank of America Corp. in partnership with US nonprofit The Nature Conservancy have helped refinance over $1 billion in debt for Belize, Barbados and Gabon. In May, Ecuador swapped $1.6 billion of bonds for a new $656 million loan to raise money for conservation.
Debt-for-nature swaps are gaining traction, with Barclays Plc analysts estimating the market could reach $800 billion. Banks meanwhile are vying to arrange the deals, which yield lucrative fees and can bolster a firm’s ESG credentials.
Still, some debt experts and climate activists have questioned the cost and opacity of such deals. And this week, the International Capital Market Association suggested such bonds probably don’t merit the “blue” label under which they’ve often been marketed, citing their new guidelines.
The initial $100 million in funding for the Indian Ocean project came from groups including the IUCN, the World Wide Fund for Nature, Irish Aid and agencies of the French and German governments. Bloomberg Philanthropies also contributed to the project. Sberna declined to identify the source of the $200 million that’s now in the pipeline.
The goal had initially been to unveil the project preparation facility at the COP28 climate summit that starts in Dubai at the end of November. But the timeline has now been pushed back into next year, he said.
“The commitments are of course for the debt financial swaps to happen,” Sberna said.
The initiative aims to protect 30% of the ocean area across the nations in the pact. It also aims to safeguard and restore biodiversity, sequester at least 100 million tons of carbon by 2030, and develop a sustainable ocean-based economy for 70 million people in coastal communities. Mangrove swamps, seagrass meadows and coral reefs will be targeted for protection.
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