About the
Sustainable
sovereign debt hub
The Challenge
Over the coming years, the debt crisis in low and middle-income countries is expected to worsen due to high financing costs and the compounding effects of climate and nature degradation. In 2024, net outflows from EMDEs (excluding China) were estimated at over $50 billion, leaving vulnerable nations paying significantly more in debt service than they receive in new development finance.
Meeting development and climate goals in emerging markets and developing economies will require around $ 1 trillion per year in external finance by 2030. This implies a 15x increase in private finance, a 5x increase in concessional finance, and 3x more multilateral development finance.
Today’s sovereign debt markets are not fit for purpose, as they fail to take adequate account of the sustainability risks which are increasingly 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.
The $70 trillion sovereign debt market presents a powerful lever for emerging economies and developing countries to effectively meet climate and development goals. By scaling the use of performance-linked financial instruments with credit-relevant sustainability targets, governments can lower sovereign financing costs and break the vicious cycle of debt, environmental, and development crises.
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 Sustainable 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 Sustainable 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 Sustainable Sovereign Debt Hub is supported by the MAVA Foundation.
The Sustainable Sovereign Debt Hub is supported by the Children’s Investment Fund Foundation
The Sustainable Sovereign Debt Hub is supported by the State Secretariat for Economic Affairs (SECO).
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