F4B is working to catalyse new approaches to integrating nature into sovereign debt markets. COVID-19 and the subsequent economic downturn has put many developing and emerging markets on a path to a sovereign debt crisis, which requires an urgent global economic response. There is a compelling opportunity, and an urgent need, to deploy a sovereign debt instrument that links the cost of sovereign debt with success in protecting or enhancing a country’s natural capital.
We propose a new class of performance-based debt instruments to generate short-term liquidity and provide a practical means to embed natural capital in debt markets.
Nature Performance Bonds (NPBs) would be tied to measurable targets for restoring wetlands, protecting forests, and reducing threats to wildlife and plant species, but would allow for general use of proceeds. They would incentivise nature performance by offering a reduction in coupon and the potential for a principal adjustment on full delivery of the targeted nature and climate outcomes.
NPBs build on the recent evolution of state-contingent debt instruments and green finance products by ensuring that they are not only scalable but standardised, to get beyond project-specific green finance and makeNPBs attractive to the private sector.
The ultimate outcome would be to reduce debt repayments, improve nature and climate outcomes, lower country risk and improve access to capital, increasing a country’s attractiveness as a long-term investment destination.
We have published a series of technical and policy papers, and engaged with key actors involved in the market to test this idea and build and shape this market.
