Climate Financing:
The Caribbean at a Unique Crossroads
A Multi-stakeholder Approach to Sovereign Refinancing for Climate Impact
By Rachel Welch-Phillips
Recent examples from Barbados and Ecuador—both small to mid-sized economies vulnerable to climate risks—demonstrate how multi-stakeholder partnerships can serve as a strategic mechanism for unlocking capital, driving innovation and achieving climate resilience. These countries have pioneered debt-for-climate and debt-for-nature swaps that not only provide fiscal relief but also channel resources toward conservation and adaptation goals. Their experiences offer a valuable blueprint for Caribbean nations seeking to accelerate their sustainable development.
Barbados: Debt-for-Climate Swaps
Barbados has emerged as a global leader in leveraging innovative financial tools to meet climate objectives. In recent years, its government completed two landmark debt-for-climate swaps, supported by a blend of public, private and multinational sector actors.
The first, in September 2022, involved the refinancing of US$150 million of external debt through a Blue Bond arrangement. Facilitated by global environmental NGO The Nature Conservancy (TNC) and Credit Suisse, with political risk insurance provided by the U.S. International Development Finance Corporation (DFC), the deal allowed Barbados to reduce its debt burden while committing US$50 million to marine conservation over 15 years. This included the creation of new marine protected areas and the development of a sustainable fisheries plan.
The second swap, announced in 2023, built on the success of the first. It refinanced an additional US$250 million in sovereign debt under similarly structured terms, again combining philanthropic capital, private investment, and public risk guarantees.
These transactions highlight the catalytic role of multi-stakeholder engagements for financing sustainable outcomes. Development finance institutions like the DFC provide the opportunity for essential credit enhancements that reduce risk for private investors. Multinational banks and NGOs like TNC brought technical expertise and financial innovation to the table. The Government of Barbados ensured policy alignment and local implementation capacity. Together, these actors achieved a result none could accomplish alone.
Ecuador: Scaling Conservation through Debt-for-Nature Swaps
Ecuador’s experience with debt-for-nature swaps also demonstrates the transformative potential of multi-stakeholder partnerships. In 2023, the country executed the largest such transaction in history, converting US$1.6 billion of sovereign debt into a US$656 million "Galápagos Bond" to fund marine conservation efforts in one of the world’s most biodiverse regions.
This deal was spearheaded by Credit Suisse and backed by an array of public, private and multinational players. The U.S. DFC once again played a pivotal role by providing political risk insurance, while international conservation organisations supported the structuring and oversight of the conservation commitments. The resulting fund is expected to generate over US$450 million in conservation financing over the next two decades, including initiatives to combat illegal fishing and support local livelihoods.
Lessons for the Caribbean
Both the Barbados and Ecuador experiences offer critical insights for the Caribbean:
1. Risk Sharing is Essential: One of the main barriers to sustainable investment in the Caribbean is perceived risk. Through the involvement of development finance institutions and multilateral banks, these transactions were able to reduce the risk profile sufficiently to attract private capital.
2. Blended Finance is a Game-Changer: The combination of grants, concessional loans, insurance, and private capital in a single structure can unlock financing that would not otherwise be available. Blended finance can create the enabling environment for impact investment at scale.
3. Policy Alignment Builds Credibility: The success of these transactions depends on governments having clear, enforceable sustainability objectives. Barbados’ commitment to marine conservation and Ecuador’s national biodiversity strategies ensured alignment between financing and policy outcomes.
The Role of Private Sector Engagement
While governments and development partners play a central role, the private sector’s engagement is equally critical. Financial institutions in the Caribbean must begin to integrate sustainability into their credit analysis, lending practices and risk assessment models. There is growing evidence that companies with strong ESG practices are more resilient and profitable in the long-term.
Furthermore, Caribbean conglomerates and investors should view sustainability not just as a compliance issue but as a market opportunity. From renewable energy and sustainable agriculture to blue economy ventures and green construction, the potential for profitable and impactful investment is substantial.
Towards a Caribbean Financing Ecosystem
To replicate and scale these kinds of transactions, the Caribbean must invest in building a more robust sustainability financing ecosystem. This includes:
· Regulatory frameworks that support green and blue bond issuances
· Regional platforms for pipeline development and project matchmaking
· Capacity-building for public servants and private sector actors in structuring sustainable finance transactions
· Innovative instruments such as sustainability-linked loans, performance-based grants and catastrophe bonds
Importantly, collaboration should extend across borders. A regional approach can reduce transaction costs, harmonise standards and create investment portfolios of sufficient scale to attract global capital.
The sustainability challenges facing the Caribbean are formidable, but not insurmountable. Barbados and Ecuador have demonstrated that with the right partners, political will and financial innovation, even small economies can lead the way in climate action and conservation finance.
Multi-stakeholder finance partnerships are not merely a tool; they are a necessity for sustainable development in the region. By blending capital, sharing risk and aligning incentives, these partnerships can unlock the resources needed to build a resilient, inclusive and prosperous Caribbean.
The next decade will be critical. If Caribbean countries, with the support of their public and private partners, can scale up these innovative models, the region can become a beacon for climate-smart development and a global leader in sustainability finance.
Rachel Welch-Phillips is a Sustainable Finance Specialist & Attorney-at-law