COP27 Finance Day: Strengthening the resilience of countries hit by natural disasters

  • UK Export Finance will be the world’s first export credit agency to suspend debt service payments to low-income countries and small island developing states when they are hit by climatic disasters, such as hurricanes and floods.

  • The Minister will also welcome the next step towards companies demonstrating how they will align their activities with net zero, as the UK Transition Plan Task Force Disclosure Framework is released.

Vulnerable countries hit by hurricanes and other climate-related disasters should be able to defer debt repayment, freeing up resources to fund disaster relief, under 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 loans to low income countries and small island developing states.

In a speech in Egypt on COP27 Finance Day, Treasury Minister James Cartlidge announced the release of key design principles that will underpin Climate Resilient Debt Covenants (CRDCs) for use in private sector lending, and called on all creditors – including private banks, other bilateral lenders and international financial institutions – to explore the adoption of these clauses.

This follows work carried out by the UK in recent months in collaboration with private sector institutions. A “Model Term Sheet” for private loans, including CRDCs, has been developed and is posted today on the International Capital Markets Association website.

This is part of the UK’s wider commitment at COP26 to help 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 to deliver on its core funding commitments, spending £11.6 billion on international climate finance. At COP27, the Prime Minister announced that the government would commit to tripling climate adaptation funding under this budget, from £500m in 2019 to £1.5bn in 2025.

This builds on the success of COP26 in Glasgow, which brought together nearly 200 countries and more than 120 world leaders and saw nations adopt the Glasgow Climate Pact – the plan to accelerate 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 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 driving carbon emissions to net zero by 2050.

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.

Avinash Persaud, Special Envoy to Barbados Prime Minister Mottley on Climate Finance, said:

Adopting natural disaster and pandemic clauses in debt instruments is the most effective way to make the international financial system more fit for the new world of shocks and international development. And they don’t cost borrowers or creditors a penny. We have them in our links. They can free up fiscal space for borrowers when they need it most without hurting creditors on a net present value basis. I cannot praise and commend this initiative by the British government enough.

Additionally, the Multilateral Development Banks (MDBs) have agreed to collaborate through an informal working group to further explore CRDCs and other approaches, building on the leadership of the Inter-American Development Bank in this domain. The UK calls on all other lenders to consider adopting these flexibilities in loan agreements.

Earlier today, the Treasury Minister also hailed the next step towards businesses demonstrating how they will align their businesses to net zero. The release of the UK’s Transition Plan Task Force Disclosure Framework and Implementation Guidelines for Consultation outlines how businesses can show consumers, investors and the public the steps they are taking to align their business to net zero. These documents set out clear recommendations on how companies can prepare and disclose their short and medium term plans.

The government launched the Transition Plan Task Force (TPT) in May to set the benchmark for transition plans. It comes after the government pledged at COP26 to move to mandatory disclosure of transition plans, with the FCA having already introduced initial disclosure rules for transition plans from January.

The government has taken major steps to green the global financial system, with London ranking first in the world for the third consecutive year as a global hub for sustainable finance, according to the Global Green Finance Index 10.

On top of that, the UK has raised over £20bn from NS&I’s green gilts and green savings bonds since September 2021 to fund projects in the UK and around the world to tackle climate change. climate change and other environmental challenges. Transactions in May and September contributed more than £4 billion.

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