One of the IJGlobal ESG Awards 2024 judges put it quite simply when reviewing the submission for Oceans Finance Company’s Galapagos Marine Bond, saying “more like this, please”.

The independent panel of judges was unanimous in its decision to award the trophy to this stellar project with one saying that it was “fascinating, impactful and innovative”.

This transaction saw the US International Development Finance Corporation (DFC) provide $656 million in political risk insurance for a sovereign-debt-for-nature swap in Ecuador in connection with a Galápagos marine conservation-linked bond (the Blue Bond) with the Government of Ecuador, Inter-American Development Bank (IDB), Credit Suisse, Oceans Finance Company (OFC) and the Pew Bertarelli Ocean Legacy. Credit Suisse acted as offeror for the international bonds.

DFC is providing political risk insurance for the Loan, while IDB is providing an $85 million guarantee. A group of 11 private insurers is providing more than 50% reinsurance to facilitate the project. Through this debt conversion, Ecuador will realise more than $1.126 billion lifetime savings through reduced debt service costs.

The debt conversion will generate an estimated $323 million for marine conservation in the Galápagos Islands over the next 18.5 years, including some $12.05 million of new funding annually and around $5.41 million annually, on average, to capitalise an endowment for the Galapagos Life Fund (GLF).

The endowment – which will be a source of permanent funding for the GLF to continue supporting marine conservation projects beyond the term of the transaction – is estimated to grow to more than $227 million by 2041.

Combined, the debt conversion and endowment will generate more than $450 million for marine conservation in the Galápagos Islands.

The GLF is a non-profit organisation that was established to direct the marine conservation funding to the Galápagos National Park Service and to efforts to manage, monitor, and enforce marine protections for the waters surrounding the Galápagos Islands.

The funds will also support Ecuador-based organisations to conduct research, advance sustainable fisheries, strengthen climate resilience, and develop a sustainable blue economy for the local community.

The GLF will be governed by an 11-member board of directors that includes 5 Ecuadorian government ministers and 6 non-government representatives.

The GLF is supported by Climate Fund Managers (CFM), via its marine ecosystem manager OFC, and the Pew Bertarelli Ocean Legacy, which together provided the early-stage capital and established the GLF with Ecuador.

Aqua Blue Investments provided additional technical assistance to Pew Bertarelli Ocean Legacy to develop the GLF and the project.

In developing conservation commitments and funding priorities, the Ecuadorian government achieved consensus by working alongside the artisanal and industrial fishing sectors and the local communities through an inclusive process that included numerous formal and informal consultations.

Additionally, securing the political risk insurance depended on significant commitments to continued community engagement and transparency, and these safeguards include ongoing environmental and social impact assessments and reporting that detail engagement efforts, stakeholder concerns, and economic and ecological changes.

Reinsurance for the project is provided by AXA XL, Fidelis MGU, Chubb Global Markets, Sovereign Risk Insurance Ltd, Mosaic, Coface, and others.

Advisers on this transaction include:

• Hunton Andrews Kurth – legal to DFC
• Clifford Chance – international counsel to the arranger
• Dentons – legal to Ecuador
• Baker McKenzie – legal to the project manager
• Norton Rose Fulbright – legal to IDB
• Bustamante Fabara – Ecuador legal to the arranger