Financial innovation: An elephant steps out of the forest in Gabon’s Pongara National Park. Bank of America Corp arranged its first debt-for-nature swap with a US$500mil deal for the country last month. — AP
London: Barclays Plc is looking into doing deals in a complex corner of the environmental, social, and governance (ESG) debt market that was built by Credit Suisse and is now drawing interest from a string of global banks since the Swiss lender’s takeover by UBS Group AG.
The market for debt-for-nature swaps, which analysts at Barclays have estimated has the potential to grow to US$800bil, has so far been dominated by Credit Suisse. Last month, however, Bank of America Corp jumped into the market by arranging its first debt-for-nature swap, with a US$500mil deal for Gabon.
Daniel Hanna, global head of sustainable finance at Barclays’ corporate and investment bank in London, said he and his team are now “exploring a number of debt-for-nature situations with clients”.
Before its near-collapse earlier this year, Credit Suisse had cemented a reputation as the top bank for arranging such refinancing structures.
In all, the Swiss bank has helped replace about US$2.3bil of debt with roughly US$1.2 bil of new financing tied to nature projects, according to Ramzi Issa, who oversaw the deals at Credit Suisse.
But with Credit Suisse now being absorbed by UBS and mass job cuts underway, banks across the US and Europe are vying to structure the lucrative deals. Lenders looking to enter the market include Citigroup Inc, HSBC Holdings Plc and Standard Chartered Plc, Bloomberg has previously reported.
At the same time, the nascent market has faced criticism for the way in which it labels some of the bonds that finance the swaps.
Earlier this year, Barclays analysts Charlotte Edwards and Maggie O’Neal warned of “a real risk of greenwashing” in such swap deals. The so-called blue bonds being issued in connection with the transactions could give investors the impression that all the proceeds were going toward marine conservation, which isn’t the case, they wrote.
Debt-for-nature swaps are supposed to give sovereign issuers access to debt relief in exchange for promises to protect their natural environment.
Typically, that’s in the form of marine conservation commitments, which is where the concept of a “blue” bond stems from.
Hanna didn’t provide details of how Barclays would structure any potential debt-for-nature swaps, or indicate which potential issuers the bank was talking with.
“There are many countries that may be able to benefit from debt-for-climate-type swaps.
“A recent International Monetary Fund analysis identified 34 low and middle-income countries with an overlap of high climate threats and fiscal-crisis risks...We see the potential for debt-for-climate swaps to play a growing role in helping countries to tackle existing funding issues and environmental conservation at the same time,” Bloomberg Intelligence said. — Bloomberg
