Ecuador’s record breaking debt-for-nature swap is creating a buzz: The recent completion of Ecuador’s debt-for-nature swap — which will see USD 1.1 bn of the country’s debt partially forgiven in exchange for conserving its Galapagos Islands — is “creating a clamor” among other nature-rich indebted countries, Reuters reports. Ecuador’s swap, which Credit Suisse banker Ramzi Issa describes as the “holy grail for eco-finance experts,” is the largest transaction of its kind to date. Surpassing the USD 1 bn barrier and the environmental commitments that were reached have “fundamentally changed what is possible,” the newswire said.

In a nutshell: A debt-for-nature swap is where developing nations see a portion of their foreign debt forgiven under a restructured agreement on the condition that they invest some of the savings in local conservation measures. Proponents of the mechanism laud its scalability, saying it effectively uses public funds to de-risk private investment and could plug the multi-USD tn financing gap for nature protection, adaptation, and decarbonization. Critics, on the other hand, say the loan terms can be unclear and transaction costs are high. The extra costs include insurance premiums for companies involved in the agreement, loan interest, and an array of other financing costs.

REMEMBER – Some USD 2 tn of developing country debt could be eligible for restructuring under debt-for-nature swaps. Also, former president of the Maldives Mohamad Nasheed recently said that 20 of the countries most vulnerable to climate change may stop payments on their collective debt of USD 685 bn, calling instead for a debt-for-nature swap.

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Indonesia, Malaysia want to stop the palm oil hate: Indonesian President Joko Widodo has urged stronger collaboration with Malaysia to face what he described as “discrimination” against the world’s top two palm oil producers, as concerns grow over an EU law restricting imports that are linked to deforestation, Reuters reported on Thursday. “We need to strengthen this collaboration. We don't want commodities produced by Malaysia and Indonesia to be discriminated against in other countries,” he said following a meeting with Malaysian Prime Minister Anwar Ibrahim. They both pledged to work closely to address the EU’s “highly detrimental discriminatory measures against palm oil.”

Friend or foe? Palm oil is used in almost everything from pizza to toothpaste and lipstick, but it is seen as a major driver of deforestation in some of the planet’s most biodiverse forests, according to the World Wildlife Fund (WWF). Deforestation, along with the destruction of carbon rich peat soils, releases mns of tons of carbon emissions into the atmosphere, according to the WWF. Yet experts believe that the size of deforestation caused by the industry has been in decline annually in Indonesia, hitting a 22-year low in 2021, according to Vox.

OTHER STORIES WORTH KNOWING ABOUT THIS MORNING-

• The UK government is preparing a new strategy to combat climate-driven impacts as forecasts warn the country has a 45% chance of facing another record-breaking hot summer this year. (The Guardian)
• Chinese EV manufacturer BYD is taking the lead in emerging clean-car markets around the world, including Brazil and Thailand. BYD recently entered Mexico, Spain, and the UK, and will launch in Italy this month. (Bloomberg)
• Nigeria’s second largest cement producer BUA Cement has received a USD 500 mn loan from the IFC and other lenders to develop two new energy-efficient cement production lines. (Statement)
• Deforestation in Brazil’s Amazon rainforest has dropped by c.10% in May as authorities bolster efforts to end deforestation. (Reuters)