UK Investment Giant L&G Pledges $1 Billion for New Debt-for-Nature Swaps

Post by : Saif Nasser

Britain’s largest asset manager, Legal & General (L&G), has pledged up to $1 billion over the next five years to support a new wave of “debt-for-nature” swaps in developing countries. The move is seen as a major boost for environmental finance at a time when global conservation efforts face funding challenges.

Debt-for-nature swaps are financial deals designed to help countries reduce their debt while protecting the environment. In simple terms, part of a country’s debt is refinanced at lower interest rates. In return, the government agrees to spend more money on conservation projects, such as protecting forests, oceans, and wildlife.

L&G has already supported similar deals in countries such as Ecuador, Belize, and Gabon. One of the most notable examples was Ecuador’s record-setting agreement to protect the Galapagos Islands in 2023. Now, the company wants to expand this model and help bring more such agreements to life.

The new effort is being led by specialist firm Enosis Capital, which is working with environmental organizations and insurance company AXA XL. AXA XL will provide political risk insurance, which protects investors if political changes affect the deal. This type of protection is important because many developing countries face economic and political uncertainty.

Jake Harper, a senior investment manager at L&G, said the company hopes to act as a “cornerstone investor.” This means L&G could provide a large share of funding in upcoming deals and, in some cases, even finance the entire transaction.

The $1 billion commitment will almost double L&G’s total investment in nature conservation and sustainable development in emerging markets to $2.4 billion. It will also make the firm one of the biggest players in this small but growing area of finance.

Over the past five years, only around $6 billion worth of debt-for-nature deals have been completed worldwide. Experts say the market slowed down recently after support from the U.S. government declined. Political risk guarantees from U.S. agencies had helped make earlier deals possible.

Debt swaps work by replacing expensive government loans with new, cheaper loans backed by credit guarantees. This reduces the country’s interest payments and frees up money for conservation programs. These programs may include protecting coral reefs, rainforests, endangered animals, and marine life.

The need for such action is urgent. According to the Living Planet Index by the World Wide Fund for Nature and the Zoological Society of London, global wildlife populations have dropped by an average of 73% since 1970. Forest loss, pollution, and climate change are major causes of this decline.

By bringing together investors, insurers, and environmental groups, the new initiative aims to make debt swaps faster and easier to arrange. Ramzi Issa, co-founder of Enosis Capital, said the goal is to offer countries a complete package that simplifies the process. Around a dozen new swaps are already being discussed.

L&G also sees potential for similar models in areas such as education and food security. These could include “debt-for-education” or “debt-for-food” swaps, where savings from debt payments are used to fund schools or improve food systems.

The decision by L&G shows growing interest among long-term investors in supporting sustainable projects in emerging markets. Debt-for-nature swaps are attractive because the credit guarantees often give them investment-grade quality, meaning they carry lower risk for investors.

Environmental groups have welcomed the move. Adam Tomasek of the Debt for Nature Coalition called it a major step forward. He said the strong backing from L&G and its partners could encourage more governments to take part.

In a world facing rising debt and environmental crisis at the same time, debt-for-nature swaps offer a practical solution. They help countries manage financial pressure while protecting natural resources for future generations.

L&G’s $1 billion pledge sends a clear message: protecting nature and investing wisely can go hand in hand. If successful, this effort could reshape how countries and investors work together to solve some of the world’s biggest challenges.