COP27 Finance Day: Building resilience for countries hit by natural disasters
Today (09/11/22), Exchequer Secretary James Cartlidge, will set out how innovative new loan agreements will support countries most vulnerable to the effects of climate change.
UK Export Finance will be the world’s first export credit agency to pause debt service payments for low-income countries and small island developing states when they are hit by climate catastrophes, such as hurricanes and floods
The Minister will also welcome the next step towards companies demonstrating how they will align their business with net zero, as UK’s Transition Plan Taskforce’s Disclosure Framework is published
Vulnerable countries hit by hurricanes and other climate catastrophes are set to be able to defer debt repayments, freeing up resources to fund disaster relief, as part of new UK-led initiatives unveiled at COP27 and in response to growing demands from developing countries for such innovations.
And today, UK Export Finance has become the first export credit agency in the world to offer this in its own direct lending to low-income countries and small island developing states.
In a speech in Egypt at COP27 Finance Day, Treasury Minister James Cartlidge announced publication of key design principles which will underpin Climate Resilient Debt Clauses (CRDCs) for use in private sector lending, and called for all creditors – including private banks, other bilateral lenders and the international financial institutions – to explore adopting these clauses.
This follows work spearheaded by the UK in recent months in collaboration with private sector institutions. A ‘model term sheet’ for private lending including CRDCs has been developed and is published today on the International Capital Markets Association website.
This is part of the UK’s wider commitment at COP26 to support developing countries adapt to the impacts of climate change and for the UK to be the world’s first net zero-aligned financial centre.
The UK continues deliver on our key funding commitments, spending £11.6 billion on international climate finance. At COP27, the Prime Minister announced that the Government will commit to triple funding for climate adaptation as part of that budget, from £500 million in 2019 to £1.5 billion in 2025.
This builds on the success of COP26 in Glasgow, which brought together nearly 200 countries and over 120 world leaders and saw nations adopt the Glasgow Climate Pact - the blueprint for accelerating climate action during this critical decade.
Exchequer Secretary to the Treasury, James Cartlidge, said:
Climate shocks are increasing in frequency and severity which is why we are supporting countries hit hardest. In the wake of a disaster, they face painful trade-offs between rebuilding their communities and making debt repayments.
Today is a significant 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 which suspend debt service payments for countries hit by climate catastrophes and natural disasters.
Building on our COP26 legacy, we are committed to climate-resilient development, as the UK continues to play a leading role in reducing carbon emissions to net zero by 2050.
Speaking at COP27 Finance Day, Tim Reid, UK Export Finance’s Director of Business Group will say:
Some countries are now facing tough choices between protecting their citizens as they respond to climate shocks or paying down their debts. UKEF can play an important role in helping governments navigate these decisions. By suspending the debt service payments, UKEF will enable borrowing countries to focus on responding to and recovering from a crisis.
We encourage other official creditors to consider including similar provisions in their own lending to countries most vulnerable to climate change.
Avinash Persaud, Special Envoy to Barbados Prime Minister Mottley on Climate Finance, said:
Adopting Natural Disaster and Pandemic clauses in debt instruments is the single most impactful way of making the international financial system fitter for the new world of shocks and for international development. And they don’t cost borrowers or creditors a penny. We have them in our bonds. They can free up fiscal space for borrowers just when they need it most without hurting creditors on a net present value basis. I cannot welcome and commend this initiative by the UK Government enough.
On top of this, Multilateral Development Banks (MDBs) have agreed to collaborate through an informal working group to further explore CRDCs and other approaches, building on the Inter-American Development Bank’s leadership in this area. The UK is calling on all other lenders to explore adopting these flexibilities in loan contracts.
Earlier in the day, the Treasury Minister also welcomed the next step towards companies demonstrating how they will align their business with net zero. The publication of the UK Transition Plan Taskforce’s Disclosure Framework and Implementation Guidance for consultation sets out how companies can show consumers, investors and the public what steps they are taking to align their business with net zero. These documents set out clear recommendations for how firms can prepare and disclose their plans in the short-medium term.
The Government launched the Transition Plan Taskforce (TPT) in May to create the gold standard for transition plans. This comes after the Government committed at COP26 to move towards mandatory transition plan disclosures, with the FCA already introducing initial disclosure rules for transition plans from January.
The Government has taken world-leading action to green the global financial system, with London having ranked first in the world for a third consecutive year as a leading hub globally for sustainable finance, according to the Global Green Finance Index 10.
On top of this, the UK has raised over £20 billion from green gilts and NS&I’s Green Savings Bonds since September 2021 to finance projects in the UK and across the world to tackle climate change and other environmental challenges. Transactions in May and September contributed over £4 billion towards this.
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