The Summit for a New Global Financing Pact, held in Paris on June 22, witnessed an important announcement by the UK Minister for Development and Africa, Andrew Mitchell. During his speech, Minister Mitchell revealed that the UK Export Finance (UKEF) has initiated discussions with 12 partner countries in Africa and the Caribbean to incorporate Climate Resilient Debt Clauses (CRDCs) into their loan agreements. These clauses empower governments to postpone debt repayments, thereby releasing resources to aid in disaster response and recovery endeavors. The UK-led CRDCs are anticipated to become operational in the coming months.
A Milestone in Climate Resilience Financing
This development follows the UK’s groundbreaking declaration at COP27, where UKEF became the first export credit agency worldwide to offer CRDCs in direct lending to low-income countries and small island developing states. UKEF has established a dedicated £2 billion direct lending facility aimed at financing clean growth projects abroad. The incorporation of CRDCs into loan agreements reflects the UK’s commitment to bolstering climate resilience and reducing the burdens faced by developing countries in the aftermath of climate shocks.
The Objectives of the Summit
Chaired by President Macron, the Summit for a New Global Financing Pact seeks to establish a fresh consensus for a more inclusive international financial system, focusing on the twin challenges of global poverty and climate change. The event also aims to invigorate progress toward achieving the United Nations’ Sustainable Development Goals (SDGs). With a particular emphasis on supporting low-income countries, the UK is dedicated to ensuring that the Summit delivers tangible outcomes.
Minister Mitchell’s Statement
Minister Andrew Mitchell emphasized the difficult choices faced by developing nations in the aftermath of climate-related disasters. Rebuilding communities while fulfilling debt repayment obligations presents a significant challenge. Mitchell announced that the partnerships between the UK, Africa, and the Caribbean mark a significant milestone in alleviating these pressures. Climate Resilient Debt Clauses offer relief to countries most affected by extreme weather events, allowing for temporary pauses in debt repayments and providing affected communities with the necessary breathing space to focus on recovery.
The Minister expressed pride in the UK’s leadership role in an international coalition that aims to strengthen the resilience of vulnerable countries in responding to climate catastrophes. He urged more partners to follow suit and join the coalition.
A Call to Action
The UK is at the forefront of urging international creditors to incorporate CRDCs into their lending practices. Minister Mitchell, along with France and Barbados, will issue a call to action during a side event titled “Building a More Shock Resilient Financial System.” The objective is to unite bilateral, multilateral, and private lenders in providing CRDCs by the conclusion of 2025. Early adopters are encouraged to implement CRDCs by COP28 in November, enabling vulnerable countries to allocate resources towards post-disaster recovery promptly.
Prime Minister of Barbados, Mia Amor Mottley, commended the UK for its support and leadership in developing these clauses, emphasizing their potential to transform the resilience of the international financial system.
Global Cooperation and Collaboration
At the side event, the United States is expected to announce its intention to offer CRDCs where feasible. France will provide insights into how it has integrated CRDCs into recent lending agreements. Additionally, under the leadership of the Inter-American Development Bank, nine Multilateral Development Banks (MDBs) will collaborate to explore the implementation of CRDCs. Other partners are also anticipated to pilot CRDCs in the future.
Sharing Best Practices and Support
UKEF will release its template Climate Resilient Debt Clause, which will be included as a standard provision in all loan agreements with eligible countries. This move is intended to guide other official creditors in adopting similar clauses, encouraging wider implementation and standardization in the international financial landscape.
Furthermore, Minister Mitchell announced the UK’s readiness to assist other interested countries in exploring CRDCs through the UK-funded Centre for Disaster Protection and Financial Sector Deepening Africa. This support will include sharing best practices on debt clauses and potential triggers, innovations in climate and debt, and quality assurance.
Souce: Gov[Dot]UK
