Climate Fund Managers (CFM), a prominent investment firm focused on climate-related projects, has announced the successful completion of a groundbreaking financial initiative through its marine ecosystem venture, Oceans Finance Company (OFC), that will safeguard one of the world’s most significant ecosystems: the Galapagos Islands.
This historic project, known as the Galapagos conversion, involved the exchange of $1.628 billion in Ecuadorian government bonds for a $656 million impact loan, making it the largest debt-for-climate conversion ever undertaken. By 2041, this transaction will generate savings of $1.126 billion for the Ecuadorian government. In return, Ecuador has committed to allocating $323 million of these savings to the conservation of the Galapagos Islands and establishing a new endowment fund worth $227 million, which will continue to finance their preservation in the long term.
CFM, in collaboration with OFC, played a pivotal role in advising and structuring the transaction. Additionally, CFM invested $2 million from its Climate Investor Two (CI2) Fund, a unique finance vehicle dedicated to oceans, water, and sanitation projects, during the early stages of development. Furthermore, CI2 is expected to provide an additional $5 million per year for conservation through a complementary arrangement.
Debt-for-climate conversions are an innovative financial mechanism that involves exchanging a portion of government debt for more favorable terms, with the resulting savings being used for climate-positive initiatives. The Galapagos Islands, situated within a 200,000 km² Marine Protected Area (MPA) off the coast of Ecuador, are a biodiversity hotspot and home to the highest concentration of endemic species in the world. However, due to insufficient funding to enforce their protected status, the fragile ecosystem and the communities dependent on it face risks posed by overfishing, pollution, and climate change.
The conservation funds secured through this initiative will protect the 60,000 km² Hermandad Marine Reserve (HMR) within the Galapagos Islands. This will provide crucial safeguards for marine life, promote sustainable fishing and tourism, enhance ecosystem diversity, and strengthen resilience against climate change. In addition, the HMR, extending to the Cocos Islands, will create a safe corridor along a critical migratory route for endangered marine species such as the Scalloped Hammerhead shark, Oceanic Manta Ray, Blue Whale, and various marine turtle species that traverse Ecuador, Colombia, and Costa Rica.
The funding obtained will be utilized to physically protect the HMR through conventional means like patrolling, as well as through the deployment of advanced technologies like drone monitoring and satellite imagery. Targeted financial support will also be directed toward community development initiatives, including programs that promote sustainable livelihoods, empower women economically, improve access to sanitation and waste management infrastructure (ultimately reducing pollution’s harmful impact on the marine environment), and implement educational campaigns.
Andrew Johnstone, CEO of CFM, stated, “Climate Fund Managers’ mission is to address the climate crisis. We achieve this by raising and deploying blended finance funds on a large scale and at a rapid pace, working in partnership to deliver sustainable climate solutions. Debt-for-climate conversions are an innovative climate solution that generates significant and lasting impact in a single transaction. The Galapagos conversion sets a new precedent, and we actively seek to replicate it in our target markets of Africa, Asia, and Latin America.”
Erik Wandrag, CEO of OFC, emphasized, “The Galapagos Islands are invaluable yet highly vulnerable marine ecosystems, and this conversion will conserve them for future generations. Each debt-for-climate conversion brings us closer to achieving the global goals of conserving and managing 30% of the world’s lands and waters by 2030, as well as limiting global warming to 1.5°C.”