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10th Roundtable on Financing Water–PPT Session 3-Slav Gatchev

Presentation- Tenth Roundtable on Financing Water- Session 3- Slav Gatchev

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Refinancing debt for conservation and climate:
The example of TNC's Nature Bonds program and
its applicability to freshwater
Slav Gatchev, Managing Director, Sustainable Debt
10th meeting of the Roundtable on Financing Water
22-23 November 2023
Context: The Triple Planetary Crisis
Biomass of wild
animals down by
82%
1M at risk of extinction
CAUSES INCLUDE:
Agriculture +
infrastructure
Over-exploitation
Pollution
Invasive species
Climate change
THREATS INCLUDE:
Ecosystems will
be upended and
human civilization
destabilized
Biodiversity
funding gap
700B
BIODIVERSITY
LOSS
Disasters cost the
global economy
$2.5 T
since 2000
CO₂ levels are higher
(and rising faster)
than any time
in the past two
million years
Record-breaking floods,
heat, droughts, and
wildfires affect billions
of people globally
NCS FUNDING
GAP
400BN
High debt burden
high-interest rates
Reduced
economic growth
Increased
economic and
social cost
Risk of default
Government is unable
to invest in the country’s
future, including
biodiversity and climate
change mitigation
COUNTRIES
WITH
FUNDING COST
ABOVE 10%
30
CLIMATE
CRISIS
DEBT
CRISIS
Nature Bonds Pillars
HOW THE ELEMENTS WORK IN PRACTICE
ACHIEVE CONSERVATION GOALS
Conservation
• Government commits to
time-bound, measurable
conservation and climate
outcomes in support of
conservation, climate and
sustainable development
agenda
• Conservation Planning
involving stakeholders,
communities
• Long term
implementation of
protection, management
and climate objectives
MANAGE RESOURCES
Conservation Trust Fund (CTF)
• Registered non-profit, with
own professional staff
• CTF receives funding
unlocked by transaction
(debt service savings/value
addition)
• Disburses grants to
govt/non-govt players
• A portion used to capitalize
endowment
• CTF allows access to other
sources of funding
Debt Conversion
• TNC organizes new financing from
international debt capital markets
thanks to political risk
insurance/credit guarantees
• High investment grade rating
• The new financing allows government
to repurchase pre-existing commercial
debt often at a discount and/or at a
lower cost than its market rates
Terms of the new bond include:
• 15-20 year term
• Legally binding conservation &
funding commitments
• Incremental payments for missed KPIs
• Nature Bond defaults for failure to
comply with major commitments
and/or make conservation payments
GENERATE SAVINGS
Outcomes to date
Oceans
New Protections (ha)
Oceans
Improved
Management (ha)
Funds Unlocked for
Conservation
Seychelles 43,221,700 135,000,000 $12.2M over 20 years
Belize 630,900 3,535,100 $180M over 20 years
Barbados 5,582,400 18,689,800 $50M over 15 years
Gabon 816,100 19,329,200 $163M over 15 years
Total to Date 50,251,100 176,554,100 $405.2 Million Unlocked
for Conservation
• Gabon has ambitious 30:30:30 targets for nature conservation
• Largest debt conversion led by TNC to date, first in mainland Africa: $500 M Aa2-rated
financial transaction, unlocking $163 M for marine conservation (through a regular payment and
contribution to an endowment)
• DFC (US Development Finance Corporation) provided political risk insurance to improve
credit rating and improve terms for the transaction
• Gabon’s commitments under the transaction:
 Complete a legally enforceable Marine Spatial Plan (MSP) and designating up to 30% of the ocean in
Biodiversity Protection Zones, with at least 10% under high protection and 15% under medium protection.
MSP will improve management over 100% of Gabon’s ocean.
 Tackle Illegal, Unreported and Unregulated (IUU) Fishing with a national action plan requiring 100%
Electronic Monitoring for industrial fisheries.
 Develop a Blue economy roadmap to promote sustainable economic activities.
• Implemented by an independent non-profit trust fund established with TNC’s assistance: Le Fonds de
Préservation de la Biodiversité au Gabon (FPBG).
Gabon Nature Bond project (2023)
How replicable are debt
conversion transactions?
3 main conditions for replication
• Clear conservation outcomes
• Availability of debt to refinance
• Availability and affordability of credit enhancement and
political risk insurance
Could they apply to freshwater?
• Freshwater ecosystems highly threatened
• Clear conservation outcomes can be defined, associated with:
• Protecting rivers and other water bodies that are at risk
associated with human intervention and climate
change
• Investments in maintaining free-flowing rivers and
natural flow regimes, and upstream watershed
protection and management
• Water security co-benefits, such as reliability of clean water or
flood risk reduction

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10th Roundtable on Financing Water–PPT Session 3-Slav Gatchev

  • 1. Refinancing debt for conservation and climate: The example of TNC's Nature Bonds program and its applicability to freshwater Slav Gatchev, Managing Director, Sustainable Debt 10th meeting of the Roundtable on Financing Water 22-23 November 2023
  • 2. Context: The Triple Planetary Crisis Biomass of wild animals down by 82% 1M at risk of extinction CAUSES INCLUDE: Agriculture + infrastructure Over-exploitation Pollution Invasive species Climate change THREATS INCLUDE: Ecosystems will be upended and human civilization destabilized Biodiversity funding gap 700B BIODIVERSITY LOSS Disasters cost the global economy $2.5 T since 2000 CO₂ levels are higher (and rising faster) than any time in the past two million years Record-breaking floods, heat, droughts, and wildfires affect billions of people globally NCS FUNDING GAP 400BN High debt burden high-interest rates Reduced economic growth Increased economic and social cost Risk of default Government is unable to invest in the country’s future, including biodiversity and climate change mitigation COUNTRIES WITH FUNDING COST ABOVE 10% 30 CLIMATE CRISIS DEBT CRISIS
  • 3. Nature Bonds Pillars HOW THE ELEMENTS WORK IN PRACTICE ACHIEVE CONSERVATION GOALS Conservation • Government commits to time-bound, measurable conservation and climate outcomes in support of conservation, climate and sustainable development agenda • Conservation Planning involving stakeholders, communities • Long term implementation of protection, management and climate objectives MANAGE RESOURCES Conservation Trust Fund (CTF) • Registered non-profit, with own professional staff • CTF receives funding unlocked by transaction (debt service savings/value addition) • Disburses grants to govt/non-govt players • A portion used to capitalize endowment • CTF allows access to other sources of funding Debt Conversion • TNC organizes new financing from international debt capital markets thanks to political risk insurance/credit guarantees • High investment grade rating • The new financing allows government to repurchase pre-existing commercial debt often at a discount and/or at a lower cost than its market rates Terms of the new bond include: • 15-20 year term • Legally binding conservation & funding commitments • Incremental payments for missed KPIs • Nature Bond defaults for failure to comply with major commitments and/or make conservation payments GENERATE SAVINGS
  • 4. Outcomes to date Oceans New Protections (ha) Oceans Improved Management (ha) Funds Unlocked for Conservation Seychelles 43,221,700 135,000,000 $12.2M over 20 years Belize 630,900 3,535,100 $180M over 20 years Barbados 5,582,400 18,689,800 $50M over 15 years Gabon 816,100 19,329,200 $163M over 15 years Total to Date 50,251,100 176,554,100 $405.2 Million Unlocked for Conservation
  • 5. • Gabon has ambitious 30:30:30 targets for nature conservation • Largest debt conversion led by TNC to date, first in mainland Africa: $500 M Aa2-rated financial transaction, unlocking $163 M for marine conservation (through a regular payment and contribution to an endowment) • DFC (US Development Finance Corporation) provided political risk insurance to improve credit rating and improve terms for the transaction • Gabon’s commitments under the transaction:  Complete a legally enforceable Marine Spatial Plan (MSP) and designating up to 30% of the ocean in Biodiversity Protection Zones, with at least 10% under high protection and 15% under medium protection. MSP will improve management over 100% of Gabon’s ocean.  Tackle Illegal, Unreported and Unregulated (IUU) Fishing with a national action plan requiring 100% Electronic Monitoring for industrial fisheries.  Develop a Blue economy roadmap to promote sustainable economic activities. • Implemented by an independent non-profit trust fund established with TNC’s assistance: Le Fonds de Préservation de la Biodiversité au Gabon (FPBG). Gabon Nature Bond project (2023)
  • 6. How replicable are debt conversion transactions? 3 main conditions for replication • Clear conservation outcomes • Availability of debt to refinance • Availability and affordability of credit enhancement and political risk insurance Could they apply to freshwater? • Freshwater ecosystems highly threatened • Clear conservation outcomes can be defined, associated with: • Protecting rivers and other water bodies that are at risk associated with human intervention and climate change • Investments in maintaining free-flowing rivers and natural flow regimes, and upstream watershed protection and management • Water security co-benefits, such as reliability of clean water or flood risk reduction
  • 7. Key messages Nature Bonds can help unlock funding for conservation outcomes TNC’s Nature Bond projects have so far focused on marine conservation, but TNC is exploring ways to apply the mechanism to other conservation or climate objectives, including freshwater ecosystems. We are developing guidelines to ensure that Nature Bonds projects are deployed in a manner that is robust and transparent and can guarantee real and measurable benefits for nature and people We look forward to engaging with interested parties to deploy these instruments at greater scale, including countries where there are clear needs for freshwater conservation