By Vanora Bennett
Responding to international calls for scaled up climate action and seeking to enhance climate resilience in its regions of operation, EBRD to include climate resilient debt clauses in new loans for sovereign and municipal clients in lower-middle-income countries in EBRD regions
The clauses enable debt deferral on pre-agreed terms after a severe climate-induced or natural disaster
EBRD already offers instruments to private-sector clients which deliver equivalent outcomes
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.
