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Development banks get ratings boost on climate clauses and hybrid bonds

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By illuminem briefings

· 2 min read

illuminem summarizes for you the essential news of the day. Read the full piece on Reuters or enjoy below:

🗞️ Driving the news: Fitch Ratings has announced that Climate Resilient Debt Clauses (CRDC) and new 'hybrid' bonds will not negatively impact the credit ratings of development banks, including the World Bank
• These measures are designed to aid countries facing climate disasters without compromising the banks' financial stability

🔭 The context: CRDCs allow low-income countries to defer debt payments for up to two years if affected by severe climate events, a crucial support as climate risks rise
• Concerns existed that such clauses could make the banks appear risky to investors, but Fitch's affirmation maintains their high credit ratings

🌍 Why it matters for the planet: This move supports financial resilience in vulnerable countries, enabling them to better cope with climate disasters without immediate financial penalties
• It encourages sustainable investment and enhances global efforts to address climate change impacts

⏭️ What's next: Fitch's endorsement of CRDCs and hybrid bonds is expected to lead to wider adoption of these financial instruments
• Development banks will continue to explore innovative funding mechanisms to bolster climate resilience and support sustainable development

💬 One quote: "The introduction of deferral clauses would typically be rating neutral," said Fitch analyst Arnaud Louis, indicating stability for the banks' ratings

📈 One stat: Hybrid bonds' ratings will now be notched three levels below the standalone credit profile of the respective banks, improving from the previous five-notch gap

Click for more news covering the latest on ESG

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