Environmental Preservation and Corporate Involvement: Green Products and Debt-for-Nature Swaps

By Chambers, Catherine M.; Chambers, Paul E. et al. | Review of Business, Summer-Fall 1993 | Go to article overview

Environmental Preservation and Corporate Involvement: Green Products and Debt-for-Nature Swaps


Chambers, Catherine M., Chambers, Paul E., Whitehead, John C., Review of Business


Events such as the Valdez oil spill and extensive media coverage of the possibility of global warming have energized the environmental movement in the United States. The 1992 UN Conference on Environment and Development in Rio de Janeiro brought additional world attention to the deforestation of tropical rain forests. Business firms can no longer attempt to operate in a vacuum concerning environmental issues. Even if the changes are superficial, firms face pressure to become "environmentally correct". Many of the efforts of U.S. firms have been devoted to developing ecologically sound products and packaging. For example, cosmetics manufacturer Estee Lauder recently launched a new product line which involves environmentally safe cosmetics, recyclable bottles and tubes, and packaging materials made of recycled materials (C. Miller 1991). Major retailers such as K-Mart and Wal-Mart are stocking their shelves with more environmentally kind products (see Schwartz 1990, Fisher and Graham 1989). On a global scale, U.S. firms are also directly and indirectly involved in assisting the attempts of conservation organizations to preserve the world's tropical rain forests.

Tropical deforestation generates great concern in the U.S. and other developed countries due to the possibility of irreversible development and its effects on biodiversity and global climate change. This concern is well justified since tropical rain forests are disappearing at an amazing rate. Within the Legal Amazon of Brazil, deforestation averaged around 21,000 square kilometers per year for the period 1978 to 1988. To put this into perspective, the state of Massachusetts has an area of 21,468 |km.sup.2~. Recently, the levels of deforestation in this area have declined to 17,900 |km.sup.2~ and 13,800 |km.sup.2~ in 1989 and 1990 (World Bank 1992).

Private conservation organizations are attempting to fill a void created by the failure of markets to allocated nature resources properly as shown, for example, by the overharvesting of the tropical rain forests. Tropical rain forests are economic assets which provide "services" such as biodiversity and mitigation of global climatic change. Traditional approaches to conservation are failing or are insufficient, especially in the case of forests located in developing nations burdened with large foreign debt payments. Morris Miller (1991) suggests that such developing nations give low priority to preservation projects, and he argues that the problems of environmental degradation and the debt crisis in lesser developed countries cannot be solved independently. Nongovernmental conservation organizations and corporations have become involved in debt-for-nature swaps, which represent a possible simultaneous solution to these two problems.

Debt-for-Nature Swaps

To overcome developing nations' inability to fund preservation projects, nongovernmental conservation organizations (NGOs) have initiated a new form of conservation agreement: debt-for-nature swaps.(1) Debt-for-nature swaps occur in many different forms (Hansen 1989). One type of swap involves the central bank of the less developed country (LDC) converting foreign debt into local currency or local bonds, which are then held by local environmental groups for investment in preservation projects. Alternatively, the debt may be donated directly to the local environmental organization. Another type of swap involves environmental quality rather than preservation. An environmental organization may purchase LDC debt on the secondary market and resell it at a discounted price to a multinational corporation in order to support environmentally sound corporate investment. Finally, debt-for-nature swaps may involve official debt relief conditional on government support of environmental management. This type of swap is particularly interesting, since it simultaneously reduces the level of harvesting and the debt burden of the LDC.

The popular press has been intrigued by the idea of debt-for-nature swaps as a solution to reducing both the debt crisis and the tropical deforestation problem of Latin America.

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