- Announced on Finance Day at COP27, UK Export Finance (UKEF) will become the world’s first export credit agency to offer Climate Resilient Debt (CRDC) clauses in its direct sovereign lending.
- The clauses will provide low-income countries and small island developing states with the ability to defer debt repayment in the event of a severe climate shock or natural disaster.
- This announcement is part of the UK government’s broader aim to help improve the financial resilience of vulnerable countries to severe climate shocks.
UK Export Finance (UKEF) will become the first export credit agency in the world to introduce Climate Resilient Debt (CRDC) clauses in its loan agreements. These will give low-income countries and small island developing states the ability to defer debt repayment in the event of a severe climate shock or natural disaster.
This is part of UKEF’s wider ambition to integrate climate change into its decision-making in line with its climate change strategy and net zero 2050 target.
Speaking at COP27 Finance Day, UK Export Finance Trade Group Director Tim Reid will say:
Some countries now face tough choices between protecting their citizens from climate shocks or paying off their debts. UKEF can play an important role in helping governments navigate these decisions. By suspending debt service payments, UKEF will allow borrowing countries to focus on crisis response and recovery.
We encourage other official creditors to consider including similar provisions in their own loans to countries most vulnerable to climate change.
UKEF helps overseas buyers access financial support to make their plans happen, provided they commit to sourcing goods and services from the UK. This opens new doors for world-class UK suppliers to trade overseas.
The announcement is part of the UK government’s broader aim to improve the financial resilience of vulnerable countries around the world to severe climate shocks. Alongside UKEF, the Private Sector Task Force chaired by the UK Treasury will also today launch a ‘template term sheet’ to embed the deferral of climate-resilient debt into standard contracts. bonds and loans. Multilateral development banks will also agree to form an informal working group to further explore CRDCs and other approaches, building on the leadership of the Inter-American Development Bank in this area.
Exchequer Secretary to the Treasury, James Cartlidge, said:
Climate shocks are increasing in frequency and severity, which is why we support the hardest hit countries. In the wake of a disaster, they face painful trade-offs between rebuilding their communities and paying off their debts.
Today is an important milestone in our work to find innovative solutions to these global challenges, and I am proud that UK Export Finance is the first export credit agency in the world to offer loans that suspend service payment debt for countries affected by climatic and natural disasters. disasters.
Building on our legacy from COP26, we are committed to climate-resilient development as the UK continues to play a leading role in reducing carbon emissions to Net Zero by here 2050.
The new CRDC is part of UKEF’s commitment to a greener and more sustainable future following the launch of its climate change strategy in 2021, in which it committed to net zero emissions greenhouse gas emissions by 2050 across its portfolio and operations. UKEF has provided over £7bn of support for green and sustainable projects since 2019, and has a £2bn direct lending facility dedicated to funding clean growth projects overseas .
Notes to editors
Benefits of the new debt covenants include:
- CRDC deferrals will not be considered an event of default, preserving funding and project continuity while providing liquidity to the country’s authorities.
- In the event that they are hit by a natural disaster or other climatic shock, eligible countries will be able to request a 12-month suspension of all principal and interest payments due to UKEF, and deferred payments will be repayable on a period of 5 years after a grace period of 1 year.
The CRDC will be offered under new and modified direct sovereign loans from UKEF and previously restructured sovereign transactions to climate-vulnerable low-income countries (LICs) and small island developing states (SIDS).
This announcement is part of the finance day at the COP27 summit in Sharm el-Sheikh. COP27 brings parties together to accelerate action towards the goals of the Paris Agreement and the United Nations Framework Convention on Climate Change.
More generally, UKEF provides large-scale support for sustainable projects in Africa, Asia and Europe. This includes:
On the work of multilateral development banks:
- The Inter-American Development (IDB) is the only Multilateral Development Bank (MDB) that currently offers some form of CRDC in its loans, through a principal payment option. Benigno López Benítez, Vice President for Sectors at the IDB, joined the UK pavilion panel on Finance Day to share the IDB’s experience with the CRDCs.
- MDBs are vital sources of large-scale affordable finance for developing countries. Development finance institutions mainly provide project investment finance. The UK calls on all MDBs, Development Finance Institutions and other creditors to explore the use of CRDCs.
- The UK welcomes the formation of an informal MDB working group to further explore CRDCs and other approaches, building on the leadership of the Inter-American Development Bank in this area.