Climate Resilient Debt Clauses
Climate Resilient Debt Clauses (CRDCs) provide an ex-ante sovereign debt deferral mechanism that may be triggered in the event of a pre-defined natural disaster leading to major financial losses. Specifically, CRDCs provide for the deferral of a country's debt repayments for a pre-agreed period in the event of a severe climate shock or natural disaster with the view to (i) avoiding a payment default for a country already in crisis and (ii) preserving much needed FX liquidity to support disaster relief. This webpage gathers resources for both creditors and borrowers to help better understand CRDCs. It is also the landing page for the work and resources of the CRDC Technical Working Group (the CRDC WG).
The CRDC WG is a multi-stakeholder group comprised of representatives from G7 Treasuries, MDBs, borrower DMOs, and technical experts. It launched in March 2024, and meets monthly to design workable triggers and build understanding around CRDCs, with a view to drafting standard contractual language readily accessible to sovereign issuers wishing to avail of these clauses in their financing arrangements, including with the private sector.
This effort picks up on ICMA’s work (in collaboration with IMF staff, Canada and Clifford Chance), which resulted in the Hurricane Clause indicative term sheet available on the ICMA website, and that continued under the leadership of the UK's last G7 Presidency, including through the Private Sector Working Group (PSWG) in 2021. The Chair’s Summary of the PSWG’s work is available on the ICMA website.
The Sustainability-Linked Sovereign Debt Hub serves as the CRDC Working Group's secretariat, and Clifford Chance (Deborah Zandstra and James Kelton) provides legal support for the initiative, which the Children’s Investment Fund Foundation supports.
Meeting 1: CRDC Working Group launch:
The WG was launched by presenting a stocktake of the progress of the Private Sector Working Group on CRDC by Clifford Chance, with different stakeholder members sharing their knowledge and experiences, and setting governance and objectives for future convenings.
Meeting 2: A private sector perspective
Swiss Re Capital Markets explained their approach and products in the field of natural catastrophe risk and catastrophe bonds.
Meeting 3: An MDB's perspective: Caribbean Development Bank (CBD)
The Caribbean Development Bank (CBD) shared their experience and considerations in transforming CDB into the first climate-shock absorber Development Bank.
Meeting 4: An MDB's perspective: Inter American Development Bank (IDB)
IDB presented to the group their approach and menu of products that provides governments with options to cope with climate events and disasters.
Meeting 5: An expert view on trigger design process
The Centre for Disaster Protection (CDP) presentation focussed on the trigger design process and on practical aspects of such triggers.
Meeting 6: An investor's view
Western Asset Management intervention described challenges and opportunities of CRDC clauses for institutional investors.
Meeting 7: Grenada's trigger of Earthquake clause and ABA (American Bar Association) Resolution for Small Island Developing States (SIDs) treatment.
Due to the recent trigger of Grenada's Earthquake Clause, WG members comment on the process and progress of implementation of the clause.
Presentation of the ABA Resolution (August 24) on suspending foreign debt obligations to 3 SIDs and in support to Bridgetown Initiative to favour grants or concessional financing for resiliency and adaptation for SIDS.
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