Debt-for-Nature Conversion Projects: New Voluntary Practice Standards

Background

In June 2025, a group of conservation organizations, chaired by The Nature Conservancy, published a new set of voluntary practice standards for debt conversion projects: the Practice Standards for Debt Conversion Projects for Nature, Resilience, and People.

These practice standards follow up on the efforts announced by a coalition at COP16 between The Nature Conservancy, Conservation International, The Pew Charitable Trusts, Re:wild, The Wildlife Conservation Society and the World Wildlife Fund in the United States. The coalition aims to unlock up to US$100-billion in funding for climate- and biodiversity-related conservation efforts by scaling sovereign debt conversions for conservation commitments, as described below.

This bulletin will provide an overview of debt-for-nature conversion projects (Debt Conversion Projects) and a summary of the new practice standards (Practice Standards).

Context

Debt Conversion Projects have received increased international attention following the recent success of two large-scale projects.

The first, a 2021 project in Belize, involved a US$364-million debt conversion, which allowed Belize to reduce its sovereign debt by 12% of its GDP in exchange for a binding commitment to protect 30% of its ocean, among other measures.

The second, a 2024 project in El Salvador, involved refinancing over US$1-billion of existing sovereign debt and applying nearly all of an estimated US$352-million in savings to conservation efforts targeting the Lempa River. To date, this is the largest Debt Conversion Project both in terms of the amount of debt converted and conservation financing commitment.

Debt Conversion Projects allow countries with a credit rating below investment grade to access international capital markets by issuing debt with an enhanced credit rating, generally by using a credit enhancer such as political risk insurance or guarantees from financial partners.

By issuing debt using an enhanced rating, these countries are able to generate savings in one of three ways:

1. Reducing existing debt stock by buying back existing debt at a discount
2. Refinancing debt at a lower interest rate
3. Issuing new debt at below-market rates

The savings generated by this issuance are then reinvested into conservation and climate resilience outcomes, such as the ocean conservation efforts in Belize.

Critically, these debt refinancing instruments are linked to binding conservation commitments with measurable outcomes and goals, ensuring that these projects have a concrete impact on global conservation and climate resilience efforts.

Practice Standards

The Practice Standards identify five interrelated components that should be addressed in all sovereign debt-conversion transactions. Together, these elements are intended to ensure that Debt Conversion Projects deliver durable conservation and climate outcomes while maintaining fiscal responsibility and safeguarding community interests.

Nature, Resilience and People Practice Standards

These standards focus on defining the commitments that form the foundation of the project. Governments, working with experienced conservation partners, are expected to co-develop ambitious, legally binding objectives that integrate conservation, climate and community priorities. The intent is to ensure that the project delivers outcomes that are measurable, aligned with national strategies and consistent with international frameworks such as the Paris Agreement, Nationally Determined Contributions and the Kunming-Montreal Global Biodiversity Framework.

Commitments should be specific, realizable within a designated timeframe, and supported by clear milestones and measurable performance indicators that allow progress to be monitored and verified. They should also be ambitious, meaning that the targets should be set beyond what the country could achieve without the Debt Conversion Project and associated financial benefits. Equally important is the integration of social equity considerations; affected stakeholders must be engaged meaningfully from the earliest stages. The standards call for a rights-based approach and the adoption of environmental and social safeguards to ensure that conservation gains do not come at the expense of community well-being.

Governance and Operations Practice Standards

These standards outline how institutional and operational arrangements should be structured to ensure transparency, accountability and efficient decision-making. At the core is the establishment of an independent Conservation Trust Fund (CTF) to manage and disburse the conservation finance stream. This fund should operate at arm’s length from government and meet recognized fiduciary and governance standards, with multi-stakeholder representation and independent oversight.

These standards also highlight the importance of having an experienced project sponsor guiding and coordinating the various actors involved in the project. Experienced sponsors are essential to linking the different parties involved in the financial structure process and negotiating project agreements, as well as facilitating the involvement of credit enhancers and lead arrangers in the project.

The governance framework should also include formal structures such as inter-ministerial working groups and an oversight implementation unit to coordinate between ministries, conservation partners and financiers. These bodies must have clear mandates and communication protocols to safeguard confidentiality while facilitating effective collaboration. The standards stress the importance of maintaining governance capacity and technical expertise throughout the project lifecycle, ensuring that implementation remains consistent even through political transitions.

Financial Transaction Practice Standards

The financial structuring of the debt conversion is central to its success. These standards aim to ensure that the transaction achieves genuine fiscal benefit while creating a sustainable funding stream for conservation and resilience activities. Typically, this involves repurchasing or refinancing a portion of the sovereign’s debt at a discount, with the resulting savings directed to the CTF. The transaction should be designed to deliver measurable net present value savings or, at a minimum, be cash-flow neutral.

The standards recommend the use of credit-enhancement tools such as guarantees or political risk insurance to secure favourable refinancing terms and broaden investor participation. A clear process should be followed: assessing eligible debt, structuring the refinancing, securing enhancements and legally ring-fencing the savings. Transparency is key, with clear disclosure of pre- and post-closing costs and competitive selection of transaction advisors and arrangers. Importantly, the funding generated must be additional to existing government conservation budgets, rather than substituting for them.

Conservation Trust Fund Management Practice Standards

The CTF serves as the institutional mechanism for receiving, investing and disbursing the financial flows generated by the debt conversion. The standards call for the CTF to be legally independent, professionally managed and fully compliant with international best practices, such as those set by the Conservation Finance Alliance. Governance should be transparent and participatory, with a multi-stakeholder board, clear conflict-of-interest policies, and rigorous audit procedures.

The fund’s grant-making policies should apply equally to government and non-government recipients, with particular attention to supporting local and Indigenous organizations that may face capacity barriers in accessing funding. The CTF should also be capable of mobilizing additional resources from donors, multilaterals and private investors, thereby leveraging the initial transaction to create longer-term conservation finance. Investment management policies should balance the need for capital preservation with opportunities for sustainable growth. Finally, the CTF must maintain environmental and social risk-management systems to ensure funded projects do not cause unintended harm.

Social Safeguards and Human Rights Practice Standards

Credible monitoring and reporting are essential to maintain trust among stakeholders and to demonstrate that commitments are being met. These standards require the establishment of a robust monitoring, reporting and verification (MRV) framework that encompasses environmental, social and fiscal performance. The framework should define metrics, baselines, data sources, responsibilities and reporting schedules from the outset. Where possible, MRV systems should align with existing national reporting obligations, such as those under the Paris Agreement, to avoid duplication and enhance efficiency.

Conclusion

These Practice Standards provide actionable advice and guidance for parties interested in engaging in the debt-for-nature conversion projects, including sponsors, investors and lenders. While these projects are not the kind to take hold in Canada, due to our investment-grade credit rating, there are an increasing number of opportunities to take part in these projects abroad.

We will continue to keep you updated on further developments in sustainable finance for conservation.

For further information, please contact the authors or any other member of our Environmental, Social & Governance (ESG) or Financial Services groups.