Over the past few decades, the use of market-based financial instruments to protect the environment has gained increasing attention. Innovative debt-for-ocean conservation swaps model is a case in point. These debt swaps allow heavily indebted developing countries with a considerable marine area to create some fiscal space by restructuring their existing debt. In exchange for the debt reduction, the state commits itself to marine conservation. They are often structured with the involvement of the private sector, particularly through private intermediated debt swaps in which private investors lend money to sovereign debtors via a non-profit intermediary. This is the case with the Blue Bonds (or, as recently revised, Nature Bonds) programme, which is led by The Nature Conservancy (TNC).
Put simply, this particular debt swap consists of two primary agreements. The first is a loan relationship between the borrowing government and TNC through which the government’s existing debt is written off at a reduced price. This loan money is paid to existing creditors who agreed to accept an early settlement with a discount. The loan agreement also establishes marine conservation commitments that bind the government. The percentage of marine protected areas that need to be established and gazetted is specified in this Blue loan contract. The contract also determines the conditions for the use of marine space through a marine spatial plan. The second agreement is between the bank that issues the Blue Bonds (or nature bonds) and the bond investors. In this relationship, despite the fact that the investment is made to finance the debt swap, the issuer does not legally promise a certain environmental outcome.
Seychelles became the first country to conclude such a debt swap in 2018, followed by Belize in 2021. More recently, Barbados and the Bahamas have entered into such agreements.
Many other countries are in the negotiation phase to sign up for a Blue loan. This model is likely to grow as TNC has just formed a new alliance with six other global environmental organisations. This cooperation with new partners will increase the financial resources and technical capacity available to launch debt conversions. However, the impact of these debt swaps on the citizens of borrowing states has been very poorly analysed. The current practice raises concerns about the potential violation of the human rights of local communities. Indigenous peoples could be particularly affected by the creation of marine protected areas.
Current Experiences with Blue Bonds: Transparency Concerns and Impacts on Local Communities
The experience with Blue Bonds so far raises concerns for the future. Indeed, the creation of protected areas already appears to have had a negative impact on local communities, especially fishermen.
The lack of transparency regarding the negotiation to issue the loan and its implementation is one of the issues identified by some scholars and civil society. Indeed, Blue Bond prospectus and contracts are not always publicly available, except for some, such as Barbados, which published their agreement months after it was signed. It is, therefore, doubtful whether citizens are aware of the terms of the bond and can imagine the impact it will have on their lives.
However, Blue loan agreements require the marine spatial plan, which supervises the implementation of the marine conservation milestones, to be “transparent” and to involve the citizens of the borrowing government. Indeed, the states are required to establish “multi-stakeholder committees”. However, the process is described as extremely complex, especially for marginalised communities, who need special support to effectively participate. However, this necessary support does not appear to exist in the implementation of debt swaps.
There are also conflicts and power imbalances between the different parties represented on the committees. This imbalance mostly impacts marginalised groups, which are usually neglected by the state.
For instance, in the Seychelles, the implementation of marine spatial planning has prevented local fishermen from accessing key fishing areas. In addition to negatively impacting the right to work of fishermen, it also affected the food security and well-being of the local community.
Although the fishermen were consulted, the Marine Spatial Plan, pre-determined by the loan agreement, undermined their voices. Moreover, the consultation appears to be inadequate.
Issues that local fisher communities face may also be experienced by Indigenous groups due to their particular circumstances. There is already evidence that consultation with Indigenous peoples is difficult to achieve in the current consultation process. In Belize, for example, the Stakeholder Engagement Field Report of 23 March 2023 states that there is a “perception that conservation efforts were prioritising animal welfare over the interests of human communities, particularly indigenous groups”.
As the number of debt conversions will increase in different countries, there is a risk that this problem will be experienced in other geographies as well.
Consultation or Tokenism? When Contracts Undermine Indigenous Consent
The right to information and participation of Indigenous peoples is specifically protected by the Free Prior and Informed Consent (FPIC), which is required by a number of international legal instruments. First, by the ILO Convention No. 169 (Article 16), which is a binding instrument. However, not many countries have ratified this Convention.
FPIC is also strongly emphasised in the UN Declaration on the Rights of Indigenous Peoples (UNDRIP) in Articles 19 and 32.
This fundamental right of Indigenous communities is required when carrying out “large scale development or investment projects that have a significant impact on the right to use and enjoy of their ancestral territories”, as stated by the Inter-American Court of Human Rights in the case Saramaka People v. Suriname (para. 136).
An important element is “prior”. This means that communities must be given the time they need to understand, consider, and decide on the project.
The United Nations manual for practitioners states that Indigenous communities must have “sufficient time to discuss in their own language and in a culturally appropriate way”. It also specifies that “the amount of time required will depend on the decision-making process of the rights-holders”, i.e. the indigenous peoples. It further stated that the “decision-making timeline established by the rights-holders must be respected”. It is therefore clear that the Indigenous communities are the stakeholders who should decide on the time needed for the negotiations.
The debt swap agreements, such as the Barbados blue loan, refer to international best practises which states that the marine spatial plan process shall be implemented in accordance with the IUCN Guidelines for Large-Scale MPAs. These guidelines include a specific section on “engaging Indigenous peoples and local communities”. This section states that managers should engage with Indigenous communities at an early stage to enable their participation in long-term management and that these relationships are essential to implementing socially responsible and empowering conservation strategies. As stated in international standards, these requirements of “engagement” with Indigenous peoples should be done in respect to the FPIC. Therefore, the timeline of this engagement should be decided by these peoples and respected by the other stakeholders (the borrowing government and TNC).
However, this point is in tension with the Blue loan agreements. Indeed, conservation milestones and the deadlines by which they must be achieved are already set out in the Blue loan agreement.
Furthermore, countries are under pressure to meet these requirements to avoid increased payments in case of failure to reach the milestones. As a result, the borrowing governments are rushing through the consultations. The lack of effective consultation is a major concern among the fishermen of Belize. Because of this inadequate consultation, they fear that decisions will not address their needs.
The same issue could arise in the case of Indigenous groups. Indeed, if the consultations prior to the creation of marine protected areas are not adequate, i.e. following FPIC standards, the decisions might lead to adverse effects on these groups.
If the current model of Blue loan remains the same, we can be concerned about the respect of the FPIC of Indigenous peoples, who may live on lands affected by the creation of protected areas. This potential violation would not only violate their right to information and consultation but also several other human rights. These include their right to land (including waters and coastal seas), to live in dignity, and to secure their own means of subsistence and development.
Rethinking Blue Bonds: The Need for FPIC Standards and a New Approach
The legal design of the bonds, which pre-determines the environmental and development outcomes, seems to undermine the effective consideration of the voices of local communities. For Indigenous Peoples, this may lead to the violation of their right to FPIC.
TNC, sensitive to not being implicated in any human rights abuses, should, therefore, reconsider the current Blue loan model and adopt an approach that allows the local communities affected by the project the time necessary to be effectively consulted.
Regarding Indigenous communities, they should be able to set the timeline for the negotiations themselves.
This new model could, for example, not specify the deadline for the completion of milestones at the time of signature. This deadline could be set later after a full and effective consultation with the different communities.
