LONDON – Britain’s biggest asset manager Legal & General told Reuters it will commit up to $1 billion over the next five years to become a cornerstone investor in a new wave of “natural debt” swaps in developing countries.
Debt-for-nature swaps are meant to reduce interest payments and allow governments to spend more on conservation, but the market has faced a relative drought since major U.S. government support for debt-for-nature swaps dried up with President Donald Trump’s return to power.
British funds giant L&G is behind record exchange deals for Ecuador’s Galapagos Islands in 2023, as well as transactions in Belize and Gabon, putting its institutional influence behind a broader effort to revitalize and grow the market.
The effort is being led by specialist firm Enosis Capital, with help from major environmental groups and insurance giant AXA XL to provide the political risk cover that is often essential in these types of deals.
“This will allow us to become a cornerstone investor (in the planned series of debt exchanges) or independently fund the transaction, depending on the circumstances,” said Jake Harper, senior investment manager at L&G.
The $1 billion commitment will nearly double L&G’s investments in conservation and sustainable development in emerging markets to $2.4 billion.
It would also make it a juggernaut in an experimental corner of the bond market, where only about $6 billion worth of natural debt transactions have taken place over the past five years.
“What we’re trying to figure out is how to make these deals happen quickly, and hopefully we’ll get there,” Harper said.
comprehensive package
Debt swaps allow funds to be used for conservation by buying back expensive government bonds and loans and replacing them with cheaper ones, thanks to “credit guarantees” that protect investors from future political turmoil.
The ecological risks could not be higher.
Global populations of mammals, birds, fish, reptiles and amphibians have declined by an average of 73% since 1970, according to the latest Living Planet Index compiled by the World Wildlife Fund (WWF) and Zoological Society of London.
A key reason for the recent stagnation in debt exchanges is that the political risk “guarantees” from the U.S. International Development Finance Corporation that supported the debt exchanges of Ecuador, Belize, Gabon, and El Salvador have dried up.
Ramsey Issa, who co-founded Enosis Capital in late 2024 after years of pioneering debt swap structures at Credit Suisse, said the combination of L&G, AXA XL and major NGOs under one umbrella gives countries looking at swaps an almost ready-made group of backers.
“We want to get to market faster by offering a comprehensive package in these deals,” Issa said, adding that about 12 swaps are currently underway.
L&G’s Harper said some of the $1 billion could also support new spin-offs such as education debt or food debt swaps.
He added that there was currently a “movement” among long-term UK investors to put more money into emerging markets, making debt swaps attractive because of their investment grade quality with credit guarantees.
Adam Tomasek, who heads the conservation group Nature Debt Coalition, said L&G’s candid approach and Enosis’ broader structure should help persuade more governments to pursue an exchange. “This is a monumental step forward,” he said.
(Reporting by Mark Jones; Editing by Ross Russell)
