Climate-Resilient Debt Clauses, and Pre-Emptive Reprofiling
Climate-Resilient Debt Clauses (CRDCs) are ex-ante agreements to postpone debt repayments in the instance of climate disasters, creating fiscal space for emergency response and resilient reconstruction.
2030 Goals
- Standardize and encourage the use of debt clauses that create a repayment pause in the wake of climate disasters.
- All MDBs and bilateral creditors include no-cost natural disaster and pandemic clauses in all future debt instruments, as well as any future restructured debt.
StatusNo progress
No progress
- The International Capital Market Association (ICMA) and the MDBs have made commitments to include climate resilient debt clauses in future lending. What a clause means for a regional, national, or sub-national bank is less known, given that climate events will impact the majority of their portfolio.
- Several regional MDBs have also begun looking into how CRDCs would impact their portfolio, given the lack of regional diversification.
- While CRDCs have widespread support [among whom? -CG], certain challenges to implementation persist, including identifying appropriate triggers, especially for events other than hurricanes, where data is limited, and efforts to establish standards are still underway.
- Credit rating agencies, including Fitch, suggested that the credit ratings for MDBs would likely not be impacted by the inclusion of CRDCs in their loans.
- The World Bank CRDCs—a key component of its broader crisis response toolkit—now extend to cover natural disasters such as floods and droughts, as well as health emergencies like pandemics. Additionally, CRDCs will be included in all World Bank Group (WBG) loans to Small Island Developing States (SIDS).
- Japan plans to launch a pilot program (May 2024) for CRDCs as part of its new sovereign lending to Pacific Island Countries.
Relevant Actors & Audiences
Private FIs
Lazard, Clifford Chance
Public FIs
UK Export Finance, FiCS
Multilateral Development Banks
World Bank , African Development Bank (AfDB), European Bank for Reconstruction and Development (EBRD), Caribbean Development Bank, Inter-American Development Bank (IDB), Asian Development Bank (ADB)
Regional MDB work has been led by the Caribbean Development Bank, with support from Lazard, although this work is not yet public.
International Organizations
International Monetary Fund
Governments
Ministries of Finance
Leading Countries and Alliances
Barbados, Grenada, UK, Bangladesh, Kenya, France, US, Spain, V20, G20 Ministries of Finance, IFA WG, G7, Belize, Bahamas
Supportive Stakeholders
ICMA, UK-convened Private Sector Working Group (PSWG), CRDC Technical Working Group
Milestones
The below events contain milestones related to Climate-Resilient Debt Clauses, and Pre-Emptive Reprofiling.
April
WBG/IMF Spring Meetings 2025
Milestones
Climate-Resilient Debt Clauses, and Pre-Emptive Reprofiling
- Four to five major commercial banks announce that they will offer no- or low-cost natural disaster and pandemic clauses in sovereign debt instruments and ensure new MVP clauses in all syndicated loans to sovereigns.
Climate-Resilient Debt Clauses, and Pre-Emptive Reprofiling
- Four to five major commercial banks announce that they will offer no- or low-cost natural disaster and pandemic clauses in sovereign debt instruments and ensure new MVP (majority voting provisions) clauses in all syndicated loans to sovereigns.
June
4th International Conference on Financing for Development
Milestones
Climate-Resilient Debt Clauses, and Pre-Emptive Reprofiling
- Mainstream standardized state-contingent debt clauses, including climate-resilient debt clauses that are not covered by standard force majeure provisions in debt contracts.
November
UNFCCC COP30
Milestones
Climate-Resilient Debt Clauses, and Pre-Emptive Reprofiling
- Both private and public creditors announce the incorporation of CRDCs into their lending instruments to enhance the resilience of debt stocks.
Resources
The below resources all pertain to the topic of Climate-Resilient Debt Clauses, and Pre-Emptive Reprofiling.
ICMA Guidance Note and Term Sheet on Climate Resilient Debt Clauses
Fiscal Space, Climate-Resilient Debt Clauses, and Pre-Emptive Reprofiling
International Capital Market Association
Restructuring Sovereign Domestic Debt and the International Financial Architecture
Fiscal Space, Climate-Resilient Debt Clauses, and Pre-Emptive Reprofiling
Clifford Chance
A bridge to climate action
Fiscal Space, Climate-Resilient Debt Clauses, and Pre-Emptive Reprofiling
Finance for Development Lab
Center for Disaster Protection: Innovations in Sovereign Debt: Taking Debt Pause Clauses to Scal
Fiscal Space, Climate-Resilient Debt Clauses, and Pre-Emptive Reprofiling
Insight paper by the Centre for Disaster Protection
Private Sector Working Group – Climate Resilient Debt Clauses (CRDCs) Chair’s Summary
Fiscal Space, Climate-Resilient Debt Clauses, and Pre-Emptive Reprofiling
This note summarises the work and discussions of the UK-convened Private Sector Working Group (PSWG).
World Bank Group CRDC Product Note
Fiscal Space, Climate-Resilient Debt Clauses, and Pre-Emptive Reprofiling
Introducing a mechanism to defer the payment of principal, interest, and other loan charges to the IBRD Flexible Loan and IDA credits in case of certain natural disasters.