EBRD to Include Climate Resilient Debt Clauses in Loan Agreements for Vulnerable Countries

EBRD to Include Climate Resilient Debt Clauses in Loan Agreements for Vulnerable Countries

(IN BRIEF) The European Bank for Reconstruction and Development (EBRD) has announced the inclusion of climate resilient debt clauses (CRDC) in new loan agreements with sovereign, sovereign-guaranteed, and municipal clients from lower-middle-income countries where it operates. These CRDCs will allow the deferral of loan principal repayment for two years in the event of extreme climate-related or natural disasters, such as floods, droughts, and earthquakes, leading to a state of emergency declaration by the affected country. Eligible clients will have the option to incorporate this clause into their loan agreements by mid-2024. The EBRD’s initiative, in collaboration with other development banks, aims to provide short-term liquidity support during severe climate-induced disasters, allowing resources to be redirected towards immediate response and recovery efforts, addressing the impacts of climate change and natural hazards. The EBRD has committed to aligning its activities with the Paris Agreement’s goals and making at least half of its investments green by 2025.

(PRESS RELEASE) LONDON, 5-Dec-2023 — /EuropaWire/ — The European Bank for Reconstruction and Development (EBRD) will include climate resilient debt clauses (CRDC) in new loan agreements with sovereign, sovereign-guaranteed and municipal clients from lower-middle-income countries where it works, EBRD President Odile Renaud-Basso announced today at COP28, the global climate summit in Dubai.

The EBRD’s CRDC will enable the deferral of repayment of loan principal for two years in the event of occurrence of an extreme climate-related or natural disaster, covering floods, droughts and earthquakes, the scale of which necessitates declaration of a state of emergency by the affected country. Eligible clients are expected to be able to start opting for the clause in their loan agreements by around mid-2024.

CRDCs are primarily a short-term liquidity support tool which could provide borrowers with a fiscal “breathing space” at the time of a severe climate-induced or natural disaster, allowing them to repurpose financial resources from debt servicing to immediate response and recovery needs, and addressing the loss and damage from the impacts of climate change and natural hazards.

The EBRD made its announcement along with other multilateral development banks – the African Development Bank (AfDB), the European Investment Bank (EIB) and the World Bank – at a COP28 event on climate resilient debt clauses.

The increasing frequency and severity of extreme weather events worldwide in recent years has given added prominence to work on both climate adaptation and emergency responses to such events.

The EBRD, a leader in climate finance in central and eastern Europe, Central Asia and the southern and eastern Mediterranean, has aligned all its activities with the goals of the Paris Agreement and has committed to make at least half its investment volumes green by 2025, a goal it has met for the past two years.

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SOURCE: EBRD