Could “Climate-Just Debt Swaps” be the Key to Addressing Climate Change?

Kenyans fetching water from a now-dried-up-river
Photo Credit: Denis Onyodi /

The wealthy nations are not doing enough to address climate change – that we all agree on. But the actions they are taking are almost entirely focused on improving life in the developed world. At the same time as the UK government is rightly criticised for inadequate support of heat pumps, families in Kenya are digging in the mud at the bottom of dried-up riverbeds to get enough water to live on. Can we not find a way to address climate change that prioritises the developing world?

Consider the world from the point-of-view of a developing country: 

  • You get the worst of Climate Change and Biodiversity Loss.  
  • You are reliant on hard currencies to buy coal, oil and gas.
  • You have few resources to address problems which, after all, you didn’t cause.  
  • Multinationals, which can build what you need, are unwilling to sell to you, at least, not at a price you can afford.
  • Seventy-three countries now have foreign debt that might never be repaid. 

So yes, there are many problems, but there is hope too. There is no shortage of opportunities in the developing world to address both climate change and biodiversity loss. Multinationals have a tremendous ability to build large infrastructure. Banks are experts at assessing currency risks.  And the wealthy nations have a lot of, well, wealth. 

Is it possible to align incentives, so that everyone wins? 

Let’s start with the debt crisis. Loans to the developing world are mostly in hard currency.  Banks prefer that.  Inflation is typically higher in developing countries, so loans made in hard currencies have less risk – to the lender.  For a developing country, the difference in inflation rates means that their loan payments increase in real terms.  Loans that were once affordable become an increasing burden, leading inevitably to bad debt

What if the lender would lend in local currency?  

That would be riskier for the banks, but they are the precisely the organisations best placed to assess that risk, and they can price some of that risk into payment schedules.  If a developing country’s loan is in its local currency, then over time its repayments get smaller in real terms, until it is easy for the developing country to pay them off entirely. 

What about multinationals?  

They can run large projects anywhere in the world, but only if they can be paid.  

What if the money comes from rich countries, up front in hard currency?  Yep, that would do the job.  Multinationals would fall over themselves in a rush to help as many countries as possible.   

But there’s another problem here: multinationals usually write the contracts. We need a powerful intermediary such as the World Bank, able to dictate terms under which it disburses funds. For example, the multinational can only profit from building the asset. Operational profits go to the developing country.  Also, that local supply chains and workers must be used.  And if the local workers don’t have the skills then the multinational must provide schools and universities until they do. The multinational will be able to price this in, so they can turn a profit and also expand their market. 

Why would a wealthy country donate?  

Because it wants to support its own industry.  If a company pays taxes in a particular country, and provides employment there, then the government of that country will be keen to subsidise them.  With Climate Just Debt Swaps, 100% of the money a country gives ends up back in its own economy.  That’s the kind of foreign aid governments like! 

Countries with large companies will want to find as many projects as possible, so it is important the projects are worthwhile.  Every project must have a negative carbon impact and contribute to restoring biodiversity. 

Banks, Developing Countries, Wealthy Countries and even multinationals – all benefit from Climate Just Debt Swaps.  It is time for the rich world to address the inequalities on which it has for so long fed – and so doing, reverse climate change and restore biodiversity. 

Andrew Wainwright, October 2021