UK fund giant L&G commits $1 billion to new wave of debt-for-nature swaps

By Marc Jones

LONDON, Feb 23 (Reuters) - Britain's biggest asset manager, Legal & General, has committed up to $1 billion over the next five years to become a cornerstone investor in a major new wave of "debt-for-nature" swaps in developing countries, it has told Reuters.

Debt-for-nature swaps aim to reduce interest payments so governments can spend more on conservation, but the market has faced a relative drought since U.S. President Donald Trump's return to power saw key U.S. government support for them dry up.

UK fund giant L&G, which backed Ecuador's record-setting swap for its Galapagos Islands in 2023, as well as deals in Belize and Gabon, is putting its institutional clout behind a broader push to revive and grow the market.

The effort is spearheaded by specialist firm Enosis Capital which has also enlisted major environmental organisations and insurance giant AXA XL to provide political risk cover often crucial to these kinds of transactions.

This "will give us the ability to be the cornerstone investor (in the planned set of debt swaps), or hopefully in some circumstances, solely fund the transactions," said Jake Harper, senior investment manager at L&G.

The $1 billion commitment will nearly double L&G's investment in nature conservation and sustainable development in emerging markets to $2.4  billion.

It will also make the firm a supersized presence in an experimental corner of the debt market that has seen only around $6 billion worth of debt-for-nature deals done over the last five years.

"What we're trying to solve is how to make these transactions quicker, and that is what hopefully this will achieve," Harper said.

COMPREHENSIVE PACKAGE

Debt swaps free up money for conservation by buying back expensive government bonds or loans and replacing them with cheaper ones thanks to a "credit guarantee" that protects investors against future political upheaval.

The ecological stakes could barely be higher.

Global populations of mammals, birds, fish, reptiles and amphibians have declined by 73% on average since 1970, according to the latest Living Planet Index compiled by the World Wide Fund for Nature (WWF) and the Zoological Society of London.

A key reason for the recent lull in debt swaps has been the drying up of political risk "guarantees" from the U.S. International Development Finance Corporation, which underpinned swaps in Ecuador, Belize, Gabon and El Salvador.

Ramzi Issa, who co-founded Enosis Capital in late 2024 after years pioneering debt swap structuring at Credit Suisse, said the combination of L&G, AXA XL and key NGOs under one umbrella gives countries eyeing swaps an almost ready-made group of backers.

"We want to get to market quicker by offering a comprehensive package in these transactions," Issa said, adding that around a dozen swaps were currently in the works.

L&G's Harper said some of its $1 billion could also support emerging offshoots such as debt-for-education or debt-for-food swaps.

He added there was now "a movement" among long-term UK investors to put more money into emerging markets and that debt swaps were attractive because their credit guarantees make them investment-grade quality.

Adam Tomasek, who heads the Debt for Nature Coalition of conservation groups, said L&G's upfront commitment and Enosis' broader setup should help persuade more governments to pursue swaps. "This is a monumental step forward," he said.