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In May 2023, the government of Ecuador completed the world’s largest debt conversion for conservation to protect the Galápagos Islands and its vibrant marine ecosystem.
The Hermandad Marine Reserve (HMR), located in the Exclusive Economic Zone (EEZ) of Ecuador northeast of the Galápagos Islands, was established in January 2022 by the Government of Ecuador.
This new protected area of 60,000 km² is an extension to the existing Galápagos Marine Reserve (GMR). Its purpose is to create a marine corridor that links the Galápagos with other areas of conservation importance in the Eastern Tropical Pacific (e.g. Cocos Island in Costa Rica), protecting migratory routes of vulnerable marine species including endangered sea turtles, hammerhead sharks, and whale sharks.
The importance of having a sustainable financial mechanism was identified during the process of establishing the HMR, to ensure the effective implementation and management of the new reserve and contribute to that of the existing GMR.
After working with partners and government institutions, the Government of Ecuador, with the support of Oceans Finance Company B.V (OFC), the U.S. International Development Finance Corporation (DFC), Inter-American Development Bank (IDB), Credit Suisse, and the Pew Bertarelli Ocean Legacy closed on the debt for nature conversion.
As an outcome of this process, the Galápagos Life Fund (GLF) a conservation trust fund and non-profit organization was established in 2023 to oversee the allocation of impact funding made available for conservation through the transaction. The GLF provides financial support through grants to promote the maintenance, growth, and security of the natural capital of the Galápagos Islands and their marine ecosystems by granting subsidies or funding projects aimed at governmental and non-governmental organizations. The GLF also manages and oversees the endowment.
OFC is one of the two founding members of the GLF and plays an active role as the Project Manager on the transaction for the life of the transaction until 2040. OFC also has a seat on the GLF Board of Directors and the various GLF committees including the Technical Advisory Committee and the Finance Committee.
OFC has supported the GLF develop its Environmental and Social Management System (ESMS) and other international environmental and social safeguards to meet the requirements of the U.S. International Development Finance Corporation (DFC) as a condition of providing political risk insurance.
OFC is responsible for the overall management of the government Sustainability Commitments; liaising with both the government of Ecuador to deliver on the requirements, and the independent Verification Agent to assure compliance. The requirements include monitoring of the HMR, strengthening vessel monitoring, increasing onboard observation, and reducing the number of fish aggregating devices etc.
Prior to transaction close, OFC secured political risk insurance from the DFC that covered the entire new loan to significantly reduce the interest rate and borrowing costs. OFC supported the leveraging of a $85 million loan guarantee from IDB to meet the cash reserve required for obtaining political risk insurance, a first for a debt conversion, through the development of various environmental and social studies including an Environmental and Social Impact Assessment (ESIA) and an Environmental and Social Action Plan (ESAP).
For more information on the Galápagos Life Fund and updates on the projects they are funding, click here: