Export credit’s urgent role as a catalyst for decarbonisation and social good
By Cécile Camilli, Global Head of Development & Structured Export Finance
As industrial export flows shift and governments back their national green energy champions, export credit agencies (ECAs) are going beyond traditional export support schemes, offering innovative and flexible solutions. With an increasing sense of urgency, they are backing projects that carry the risks of new green technologies, making them bankable and accelerating the transition. As they do so, they are acting as catalysts.
While the main change is an increased focus on decarbonisation and climate projects with more attention turned towards developed markets, ECAs are also playing a key role in financings that will do social good. In developing markets, ECAs are working alongside the development finance institutions (DFIs) and multilateral development banks, further mitigating environmental and social project risks through blended finance. When doing so, they are making projects more viable in vital sustainable infrastructure sectors such as health, railways or renewable energy, as well as drinking water purification or waste water treatment.
By expanding their toolkit and risk appetite, ECAs offer a much wider range of solutions across domestic and international support programs, tied-to-exports and untied guarantees, addressing the technical and credit challenges of energy transition projects, while accelerating the prospect of a more sustainable future. What’s more, they also are supporting the increased emphasis on national sovereignty and the relocation of green supply chains.
This shift among ECAs to support sustainable projects is happening quickly. Across developed and developing markets alike, 21% of the USD 140 billion in export credits provided globally in 2020 was earmarked for projects labelled sustainable, according to TXF data. That’s a nice jump from 16% in 2019.
Pushing the boundaries
Indeed, since the beginning of the pandemic-related economic crisis many ECAs have become increasingly willing to extend credit with a broader appreciation of national strategic interests.
As ECAs step up their backing for green projects, so too they are restricting funding for fossil fuels. For instance, in October 2021, Australia, Canada, the EU and US agreed to end credit support for unabated coal-fired power plants. And the UK ended all support for overseas fossil fuel projects in March 2021, while France, Sweden and Denmark announced timelines to phase out fossil fuel supports.
Individual climate initiatives come alongside international lobbying (such as the Export Finance for Future coalition) to create a sustainable level playing field at OECD level: this would align all ECAs with the Paris Agreement’s climate goals, ideally in partnership with China.
Meeting the challenges of tomorrow
At Societe Generale, we are joining with ECAs to push the boundaries of what is possible. We have renamed our traditional export finance department as Development & Structured Export Finance, bringing together export finance, structured finance, the multilaterals and DFIs. This combination makes a greater range of risks financeable -; including non-recourse financings, innovative technologies and new developments -; increases the size of transactions, extends the maximum tenor and introduces local currency finance.
Northvolt battery plant - © Northvolt Ett, Skellefteå, Sweden
Societe Generale has lead managed several innovative financings with ECAs involved, including the Swedish battery plant Northvolt project financing where ECAs took significant risk on a new technology industry, while basing their support on not only exports but also strategic import interests. The financing of a water purification plant on the Côte d’Ivoire’s La Mé river also illustrates the power of blended finance – bringing together public/multilateral and private capital. This funding involved the ECA BPI France and the West African Development Bank; it will provide both euros for international costs and local currency for local costs. By 2025, the plant will deliver about a third of the drinking water for Abidjan, Côte d’Ivoire’s largest city.
Water purification plant on the Côte d'Ivoire La Mé river - © Besix
The financing of energy transition and sustainable infrastructure projects is accelerating fast. What’s more, ECAs are no longer mostly active in the developing world. They increasingly support their national champions exporting to other developed countries, or even imports that will bolster the development of domestic low-carbon industries.
As ECAs become more flexible and innovative, they look set to make a significant difference. They are bridging the financing gap, making the risks of new technologies, nascent industries and sustainable infrastructure acceptable. As such, they are proving to be invaluable catalysts in the drive for decarbonisation and the UN sustainable development goals more broadly.