Climate change is a global challenge that requires collective action and solidarity. However, not all countries have the same capacity and resources to cope with the impacts of climate change. Some low-income and vulnerable countries are facing rising debts, limited fiscal space, and increasing losses and damages from climate disasters.
That is why COP28 Finance Day, which took place on December 4, 2023, was a crucial moment to unlock significant progress on international financial architecture reform to support these countries. Major international financial institutions and countries made new commitments to offer innovative financial instruments that can help provide countries with fiscal space to invest in climate resilience and recovery.
One of the key announcements at COP28 Finance Day was the expansion of Climate-Resilient Debt Clauses (CRDCs) in lending. These clauses allow debt service to be paused to provide breathing space when countries are hit by climate catastrophes.
The UK, France, World Bank, Inter-American Development Bank (IDB), European Investment Bank (EIB), European Bank for Reconstruction and Development (EBRD) and African Development Bank (AfDB) made new commitments to expand CRDCs in their lending. In total 73 countries called on donors to expand the use of these clauses by 2025.
The UK announced the first ever climate resilient debt clause to Senegal, the first in Africa. The World Bank announced it will start offering CRDCs in existing loans, which will pause debt as well as interest for two years in the event of a natural disaster. The World Bank has committed to covering all transaction costs. AfDB, EBRD and the French Development Agency also announced plans to integrate these clauses in sovereign loan agreements.
These commitments support countries to deal with climate shocks by ensuring they have fiscal space to invest in climate action. These are key elements of the COP28 UAE Declaration on the Global Climate Finance Framework to make climate finance available, accessible, and affordable.
Another important announcement at COP28 Finance Day was the commitment from Japan and France to support the innovative facility developed by the AfDB and IDB to leverage Special Drawing Rights (SDRs) for climate and development. Spain and the UK also indicated their willingness to further explore this solution.
SDRs are an international reserve asset created by the International Monetary Fund (IMF) to supplement its member countries’ official reserves. Using this model, wealthy countries lend their SDRs to MDBs, who can use them to issue bonds, multiplying the available capital.
This marks significant progress in reforming the global climate finance architecture by making climate finance available, accessible, and affordable. This has been the central vision of the COP28 UAE Declaration on a Global Climate Finance Framework launched at the World Climate Action Summit at the beginning of COP28.
These innovative financial instruments announced at COP28 can help provide countries with fiscal space to invest in climate resilience and recovery. These instruments are critical in the context of rising debts as well as needs to address loss and damage.
As an African, I am particularly interested in how these announcements will benefit my continent, which is one of the most vulnerable to the impacts of climate change. Africa is also facing a debt crisis, with 17 countries at high risk of debt distress and six already in debt distress, according to the IMF.
I am glad to see that some of the announcements at COP28 Finance Day have an African focus, such as the first CRDC to Senegal and the commitment from Japan and France to support the AfDB’s facility to leverage SDRs for climate and development. I hope that these instruments will help African countries to access more concessional finance, reduce their debt burden, and increase their resilience to climate shocks.
I also hope that these announcements will inspire more solidarity and cooperation among the international community to support Africa’s climate action. Africa has contributed the least to global greenhouse gas emissions, but is paying the highest price for climate change. Africa needs more support to implement its ambitious Nationally Determined Contributions (NDCs) under the Paris Agreement, which require $3 trillion by 2030.
I believe that COP28 Finance Day was a step in the right direction, but more needs to be done to ensure that climate finance reaches the people and places that need it most. I urge the developed countries to fulfill their commitment to provide $100 billion per year by 2020 for climate action in developing countries, and to scale up their support in line with the needs and priorities of African countries. I also call on the private sector, civil society, and other stakeholders to join forces and mobilize more resources and innovation for climate action in Africa.
Together, we can build a more resilient and sustainable future for Africa and the world.
