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Sunk Costs: Debt-for-Ocean a New Tool for Marine Conservation

The Nature Conservancy’s Rob Weary explains how the group brokered an innovative financing deal that could serve as a model for ocean protection in island developing nations.

Written by Ian Evans Published on Read time Approx. 5 minutes
Aldabra atoll, one of the world’s largest coral atolls, was protected under an agreement between the Seychelles government and The Nature Conservancy to swap some of the government’s debt in exchange for conserving large swaths of the island nation’s coastline.Wolfgang Kaehler/LightRocket via Getty Images

The small Indian Ocean island nation of Seychelles, located 800 miles off the east coast of Africa, recently announced two new marine reserves made possible by a groundbreaking financing program that could serve as a model for how to fund more ocean conservation in the developing world.

The new reserves, one step in the nation’s longer-term marine conservation plans, include the Aldabra atoll, one of the largest coral atolls in the world and home to a number of endangered and vulnerable species, including dugongs and the hawksbill sea turtle.

While debt reconstructions (also known as debt swaps or debt conversions) are not a new conservation tool, they have never been used for marine ecosystems before, according to Rob Weary, senior director of product development at NatureVest, the conservation investing arm of The Nature Conservancy.

Through a combination of loans and $5 million in grants, the Nature Conservancy brokered a deal to purchase almost $22 million of Seychelles’ sovereign debt at a discounted rate. In exchange, the government promised to establish marine protected areas covering 30 percent of its national waters over the next few years, and will make future debt payments to a local trust on more favorable terms. Importantly, some of the money it pays will go to fund future marine management and protection, bolstering the nation’s ocean economy and helping it prepare for climate change.

It is a method that Weary says he plans to use to help more island nations get out of debt and protect their coastal ecosystems. Oceans Deeply spoke with Weary about putting this debt reconstruction together and how it can be used for more ocean conservation.

Oceans Deeply: How did this get started four years ago?

Rob Weary: I’ve done a number of debt conversations for the organization. The first one I did was in 2001 in Belize, under a U.S. mechanism called the Tropical Forest Conservation Act. We became big fans. That mechanism, though, dried up. Congress stopped funding it, but to be honest, the majority of the places where we could do a deal like that, the deals had been done. The eligible debt had been swapped out.

So, I wanted to focus on marine conservation and climate adaptation. I was working on a similar deal in the Caribbean that we were never able to close, and I was talking about it at one of these Global Island Partnership meetings, and the Seychelles representative at the meeting came up to me and said, “Hey, Rob, would it be possible for us to do one of these deals for the Seychelles?”

We weren’t currently working at the Seychelles, but I spoke with our Africa program team, and they were excited because Seychelles had been on their radar as an area of high interest for them. I was able to start the discussions with the Seychelles, and four years later, we closed the deal.

Oceans Deeply: When it comes to protecting ocean ecosystems, how important do you think these debt swaps could be?

Weary: I think that it is a useful tool, especially as we scale this up. A lot of these small island developing states have pretty high debt loads, often attributable to natural disasters, meaning hurricanes, especially in the Caribbean. For example, on Grenada in 2004, Hurricane Ivan blew through and the damage was something like 200 percent of GDP. To recover from that, well, the country is going to borrow money. If half of GDP comes from tourism, and then you have the global financial crisis and the tourists don’t come, of course then they end up with more debt.

These countries have high debt loads, so we’re able to come to them with an idea to help them restructure that debt, redirect the debt service, potentially give a little debt relief. We’re asking them to [establish] these new marine protected areas, but then we’re creating the cash flow to help pay for them, rather than just saying, “Hey, create these marine protected areas, but good luck in figuring out how to pay for the management of them.”

Oceans Deeply: If they were approaching you and eager to get this done, why did it take four years?

Weary: A number of reasons. There were a lot of firsts in this deal. It’s the first one using loan capital, first one for marine conservation and climate adaptation. It took us some time, to be honest, to raise the $5 million in grant capital. The combination of all of those factors is the reason that it took four years to put the deal together and get it to close.

Oceans Deeply: What other nations do you hope to arrange a debt swap with?

Weary: We’re looking at a number of deals in the Caribbean. We had some pretty good discussions with the Marshall Islands and Palau [and the Federated States of Micronesia]. Unfortunately, those deals that we were looking at involved buying back U.S. debt that those territories and countries had, and the U.S. makes it really difficult to buy debt back. It actually requires congressional appropriations to cover the discounted portion.

Obviously, Congress is pretty dysfunctional in the U.S., and so the way to make that happen would have been to work through the president’s budget. But with Trump winning, we pretty much realized there would be no way forward for those deals, so we had to walk away from them.

Oceans Deeply: In many of these developing island nations, local fishing close to shore may still be an important part of people’s diet. Are you concerned that putting these area off limits will interfere with local ways of life?

Raimund Franken/ullstein bild via Getty Images

Much of the coastline of the Seychelles will be protected under a new debt reconstruction deal with The Nature Conservancy.

Weary: In the long term, this is going to help protect the fisheries at all levels, and that’s because mother nature is incredibly resilient in the oceans. In a true no-take area, a two- to three-year period you get a doubling to tripling of biodiversity and a doubling to tripling of the biomass.

Of course, fish don’t know boundaries, so you get what’s called a spillover effect. That means that you’re basically creating a fish factory. Yes, you have that two- to three-year period where you’re waiting for that recovery, and you need to be cognizant of that and do things to help cover the artisanal fishery folks who may be impacted. But in the long term, this is going to ensure that they are going to be able to continue to catch fish into the future. Even at the commercial level, there is a reason why the tuna can be in Seychelles water – they’re feeding. So, we can ensure that they will continue to come through those waters.

From the tourism aspect, if you’re coming to the Seychelles, where do you want to snorkel or dive? Where you’re going to see the most diversity of fish and the biggest fish. For the Seychelles, 50 percent of GDP comes from tourism, 30 percent comes from the tuna fishery. They’re just doing what is going to help protect, over the long term, their economy.

Oceans Deeply: Do you know why they hadn’t protected these areas before?

Weary: I remember working with the then minister of finance on this deal, and he said something that really stuck in my mind. He was like, “You know, up until very recently, we used to not think of anything we couldn’t see beyond the horizon, even though 95 percent of what we’re suppose to be managing is the ocean.” So, it was really just a lack of awareness about the need to think about and manage for the long term.

The ocean seems so infinite, and the fact that we’re actually making any impact on the ocean has become apparent only recently.

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