Environmental Protection and Sovereign Debt Restructuring

Abstract

Contributions to solving the globe’s environmental crisis are properly expected to come from every country to a greater or lesser degree depending on their share of responsibility for environmental pollution and their financial resources. But countries in financial distress and already unable to pay their debts may have a compelling argument for why they should not be expected to join the planetary effort to fight climate change. Incongruous as it may sound, however, it is precisely the subset of countries undergoing a debt restructuring that may have an alternative avenue for funding these projects. An example is Belize’s 2021 debt restructuring which resulted in both substantial debt relief and a credible long-term source of conservation funding. Building on insights from the Belize transaction, we describe a restructuring technique that could be used in a wide range of circumstances.

Keywords: ESG, sovereign debt, restructuring, green

JEL Classification: F34, H63, K12