Towards Net Zero export credit: current approaches and next steps

Abstract

As the world economy rapidly decarbonises to meet global climate goals, the export credit sector must keep pace. Countries representing over two-thirds of global GDP have now set net zero targets, as have hundreds of private financial institutions. Public and private initiatives are now working to develop new standards and methodologies for shifting investment portfolios to decarbonisation pathways based on science. However, export credit agencies (ECAs) are only at the beginning stages of this seismic transformation. On the one hand, the net zero transition creates risks to existing business models and clients for the many ECAs, while on the other, it creates a significant opportunity for ECAs to refocus their support to help countries and trade partners meet their climate targets. ECAs can best take advantage of this transition, and minimise its risks, by setting net zero targets and adopting credible plans to decarbonise their portfolios. Collaboration across the sector can be a powerful tool for advancing this goal.

Export finance and the green transition

“…A linear extrapolation scaling the total climate finance flows to meet the CPI's EUR 3.74 trillion target resulted in the final estimate of the role EXIMs and ECAs have to play in financing the net-zero transition. Hale et al (2021) mention that many FIs, including the world's largest banks, asset managers, asset owners, and insurers have moved quickly to adopt net-zero targets and create methodologies and approaches to, inter alia, measuring portfolio emissions, setting net-zero targets and interim goals, as well as defining sectorspecific pathways to net-zero and climate finance definitions. As discussed above, the UNFCCC offers a definition of climate finance.…”

“…This is equivalent to 13% of world cross‐border trade for goods and services (Berne Union, 2021). EXIMs and ECAs can influence the portfolio of goods produced in the country of origin (particularly in export‐led companies) by promoting the export of certain goods, as well as influence the mix of goods reaching the country or countries of destination (Hale et al, 2021). By moving away from their traditional role as lenders and insurers of last resort—supporting mostly manufacturing goods and carbon‐intensive industries owing to existing demand, while adopting broader mandates and principles of intervention—EXIMs and ECAs have an opportunity to intervene and employ climate‐related initiatives to alter their impact.…”

“…Hale et al (2021) mention that many FIs, including the world's largest banks, asset managers, asset owners, and insurers have moved quickly to adopt net‐zero targets and create methodologies and approaches to, inter alia, measuring portfolio emissions, setting net‐zero targets and interim goals, as well as defining sector‐specific pathways to net‐zero and climate finance definitions. As discussed above, the UNFCCC offers a definition of climate finance.…”

“…As such, strategies focus increasingly on promoting sectors of strategic importance such as climate finance. For example, EDC became the first ECA to announce a 2050 net‐zero target in July 2021 and outline initial steps towards it (EDC, 2021; Hale et al, 2021). UK Export Finance (UKEF) also announced a net‐zero commitment in September 2021, ensuring that its operations and financial portfolio will contribute to net‐zero emissions by 2050 (UKEF, 2021).…”

How “safe” is the WTO “safe haven”? A need to modernise disciplines for officially supported export credits

“…Climate action–related matters are priority themes for governments and official export finance instrument at least in most OECD countries. This includes scaling down support not consistent with the Paris Agreement, a contribution to climate resilient development and low-carbon financing, and the support of low-carbon transformation related transactions (Klasen et al , 2022; Hale et al , 2021; Liao, 2021; Caldecott, 2020; Hopewell, 2019). ECAs are only at the beginning stages of this seismic transformation.…”