Debt swaps are an established element of insolvency law: Distressed or even insolvent corporations offer creditors a share in the troubled company, for the creditors, in turn, cancel (parts of) the debt of the corporation. Since the 1980s, this concept is applied to sovereign debt, in the specific constellation of debt-for-nature (DNS).

In recent years, DNS are proliferating again, e.g. in Ecuador (Galapagos islands conservation), or Belize and Barbados (coral reef conservation). Debt-for-nature swaps (DNS) are financial transactions exchanging debts (of mostly developing nations) with foreign governments or commercial banks for local investments in environmental conservation measures.

DNS are typically offered to states that not only face constrained fiscal spaces due to their indebtedness and debt service obligations but are also particularly vulnerable to climate change and environmental hazards. DNS suggest tackling this twofold problem by using parts of the public debt to leverage the implementation of measures designed to promote climate action or biodiversity. DNS purports to create a triple-win situation: relief for debtors, nature conservation for the public, policy-reputation and (discounted but real) repayment for creditors. Despite its appealing goals DNS demand a thorough critical assessment: A lack of efficiency in reducing debt burdens, insufficient transparency and democratic participation structures (particularly with regard to indigenous peoples), a risk of greenwashing or the privatization of climate and biodiversity financing (and governance) are but a few of the enounced criticisms.

Notwithstanding this legitimate criticism, DNS are a living example for the possibility and potential of reflexive debt. The swap of sovereign financial debt with the conservation of natural assets couples economic with political and ecological rationalities. Moreover, DNS have the potentiality to put into question the dominant purely financial perception of ‘debt’: Far from being realized in any existing project, a utopia could be that DNS offer a possibility to link financial debts (of the global South) to nature or climate ‘debts’ (of the global North).

Various existent structures as well as dissatisfaction with current state-of-the-art DNS offer a promising test field for our preliminary reflexive debt theory. Our analysis of DNS proceeds in three steps: firstly, we will describe and systematize implemented DNS and, by contrasting its outcomes with reflexive debt theory, identify the so far under-analyzed structural legal constraints that are hindering DNS from turning a potentiality into a reality of reflexive debt. Secondly, we will spell out institutional, procedural and substantive requirements for a DNS framework required to realize its transformative potentiality. Thirdly, we use the DNS insights on turning law into an agent for sustainability to further develop our reflexive debt theory.

Funded by the European Union (ERC, RESOLVENCY, 950427). Views and opinions expressed are however those of the author(s) only and do not necessarily reflect those of the European Union or the European Research Council Executive Agency. Neither the European Union nor the granting authority can be held responsible for them.