L&G Commits $1bn To Nature Swaps

Legal & General, the UK’s largest asset manager, has committed up to $1bn over five years to support a new wave of debt-for-nature swaps in developing countries, seeking to revive a market that has slowed amid reduced US government backing.

Debt-for-nature swaps restructure expensive sovereign debt into cheaper instruments, typically supported by credit guarantees that protect investors against political risk. The savings on interest payments are redirected towards conservation projects. L&G previously backed Ecuador’s record-setting Galapagos Islands swap in 2023, as well as transactions in Belize and Gabon, and now intends to act as a cornerstone investor in upcoming deals.

The latest initiative is spearheaded by Enosis Capital, which has assembled environmental organisations and insurer AXA XL to provide political risk cover often seen as essential to executing such transactions. Jake Harper, senior investment manager at L&G, said the commitment would allow the firm to serve as cornerstone investor, and in some cases sole funder, in planned swaps. The $1bn allocation will raise L&G’s total investment in nature conservation and sustainable development in emerging markets to $2.4bn.

The market has faced a lull after support from the US International Development Finance Corporation, which underpinned swaps in Ecuador, Belize, Gabon and El Salvador, diminished. Only around $6bn of debt-for-nature deals have been completed over the past five years. Enosis co-founder Ramzi Issa said roughly a dozen swaps are currently in development and that offering a comprehensive package of capital and insurance should help countries move more quickly to market.

While L&G signalled that some capital could also back related structures such as debt-for-education or debt-for-food swaps, the effectiveness of the new commitment will depend on whether private institutional funding can sustain momentum in the absence of earlier public sector guarantees.