By Simon Jessop
DUBAI (Reuters) – The French development agency plans to begin inserting disaster relief clauses into its loans to vulnerable countries, its chief told Reuters on the sidelines of the COP28 climate talks.
Climate Resilient Debt Clauses (CRDC) allow a country to suspend payments on their debt and use the cash to bolster their response and recovery plans quickly instead of waiting for relief funds to arrive from other sources.
The move by the Agence Française de Développement (AFD), which in 2021 lent over 12.2 billion euros ($13.2 billion) to development projects, follows similar commitments by multilateral peers including the World Bank.
“We will be among the first movers to introduce climate resilient debt clauses,” Remy Rioux said at the annual event, being held in the United Arab Emirates, where reform of the way development banks operate has been high on the agenda.
The AFD recently released a paper describing the double macroeconomic and environmental vulnerability faced by some countries, and used the analysis to underpin its move into offering CRDCs.
“The idea is to … focus on a list of 26 countries that are particularly relevant regarding this double-vulnerability criteria,” Rioux said, adding that the countries were largely those classed as Least Developed Countries or Small Island Developing States.
The CRDCs would begin to be included in new loans starting in mid-2024, said Rioux, a former negotiator who was involved in the landmark Paris Agreement of 2015 that saw the world agree to work together to try to cap emissions.
Among other lenders to move on the issue at COP28, the World Bank said it would broaden its use of CRDCs to all existing loans in eligible countries, the list of which it would expand to 45.
Elsewhere, the African Development Bank said it would include CRDCs on all its sovereign loans starting in 2024; while the Inter-American Development Bank, European Bank for Reconstruction and Development, European Investment Bank all said they would introduce or expand their use.
The use of CRDCs is one of a group of tools that has been called for by vulnerable countries and campaigners as a way to help cushion the financial impact of natural disasters, alongside insurance and other hedging mechanisms.
Alongside its CRDC commitment, France also contributed up to 100 million euros to a fledgling fund to help cover the losses and damage caused by climate change, and 20 million euros to the Global Shield against Climate Risks, a multinational effort to provide pre-arranged emergency finance to vulnerable countries.
($1 = 0.9266 euros)
(Reporting by Simon Jessop; Editing by Mark Potter)
