About the
Sustainability-linked
sovereign debt hub
The Challenge
The world currently has a substantial problem with high levels of debt - the total global debt has surpassed $300 trillion in 2021, with 80% of new debt burden in 2021 coming from emerging markets, where total debt is now approaching $100 trillion.
Unless something is done to address the world's debt, food security and energy security issues, as well as socio-economic and political unrest, are set to increase significantly.
Today’s sovereign debt markets are not fit for purpose, as they fail to take adequate account of the sustainability risks which increasingly are having a material impact on countries’ economic growth and resilience.
Vulnerable nations are excluded from accessing the affordable capital and investment that is urgently needed to create sustainable economic growth and adequate fiscal space thus leading to a downward spiral of debt defaults, debt restructuring and further nature degradation.
The Opportunity
Sustainability-linked sovereign debt can help tackle the issues associated with sovereign debt by:
- Directly rewarding positive nature and climate outcomes through reduced costs of debt repayments.
- Encouraging investments that reduce risks through improved resilience and economic productivity, thereby lowering the cost of repayments across a country’s entire debt portfolio.
- Supporting broader sustainable development outcomes, directly through growth and productivity effects and indirectly by creating financial flexibility to support increased public spending.
- Reducing the need for ex-post debt structuring by advancing smarter risk sharing between debtors and creditors.
Expected Outcomes
The Sustainability-linked Sovereign Debt Hub’s success in addressing its core mandate will be judged against the volume and quality of sustainability-linked sovereign debt issuance, and its contribution to the development of relevant innovations, standards, and norms.
The Hub will provide a platform for relevant research, convening and communication on all matters related to sustainability-linked sovereign debt.
- The Hub will substantially increase the size of the sustainability-linked sovereign bond market spread globally across a number of countries.
- It will facilitate access to a pipeline of concessionary financing and credit enhancement.
- It will support the delivery of the standardisation of KPI-linked sovereign instruments to enable scaling up of KPI linked debt issuances and reduced costs of deal structuring.
The Sustainability-linked Sovereign Debt Hub is hosted by NatureFinance and benefits from the broader portfolio of NatureFinance's work and the extensive knowledge of its partners and networks.
The Sustainability-linked Sovereign Debt Hub is supported by the MAVA Foundation.
The Sustainability-linked Sovereign Debt Hub is supported by the Children’s Investment Fund Foundation
The Sustainability-linked Sovereign Debt Hub is supported by the State Secretariat for Economic Affairs (SECO).
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