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Bright Blue, the independent think tank for liberal conservatism, has today published a new report entitled Greening UK Export Finance, which sets out how the UK’s export credit agency (ECA), UK Export Finance (UKEF), can be brought into full alignment with the Paris Agreement and motivate other countries to follow suit.

The report applies an original assessment methodology by Climate Perspectives Group to comprehensively assess the alignment of UKEF with the Paris Agreement. The methodology assesses climate performance of Export Credit Agencies (ECAs) across five weighted dimensions.

ECAs are given one out of four overall labels and an overall score, based on the extent of their alignment: unaligned (score = 0.00/3.00), some progress (score = 1.00/3.00), Paris aligned (score = 2.00/3.00), or transformational (score = 3.00/3.00).

This score is based on five dimensions, which are differently weighted:

  1. Transparency. Financial and non-financial disclosures. Weighted 20%
  2. Mitigation I. Ambition of fossil fuel exclusion or restriction policies. Weighted 40%.
  3. Mitigation II. Climate impact of and emission reduction targets for all activities. Weighted 20%
  4. Climate finance. Positive contribution to the global climate transition. Weighted 10%.
  5. Engagement. Outreach and ‘pro-activeness’ of the ECA and its governments.  Weighted 10%.

The report finds in its assessment of UKEF according to the five dimensions:

  1. Transparency – 1.25/3.00
  2. Mitigation I – 1.33/3.00
  3. Mitigation II – 0.67/3.00
  4. Climate finance – 0.80/3.00
  5. Engagement – 2.33/3.00

Assessment outcome: Some progress (1.23/3.00)

This is most notably due to stopping official export finance support for fossil fuels (coal, oil and gas, with limited exceptions) in overseas businesses in 2021, other commitments made under UKEF’s Climate Change Strategy, as well as the UK’s recent engagement at COP26. 

Compared to other countries, the UK performs relatively well. The four other countries – Canada, Germany, Japan and the Netherlands – assessed by Perspectives Climate Research were all rated ‘Unaligned’ with the Paris Agreement.

Our polling of a reflective sample of 750 UK exporting firms, designed and conducted in partnership with Opinium, found:

  • A clear majority of all UK exporters would like for UKEF to be an important force for promoting low-carbon exports globally (73%) and providing more generous financing terms to exporting firms that help to address climate change (73%)
  • The majority of all UK exporters support: UKEF assisting exporting firms with preparation for and adaptation to climate-related risks (72%); prioritising job creation within the low-carbon and renewable energy sector over protecting employment in the oil and gas sectors (71%); and, leading among other ECAs on efforts to combat climate change (70%).
  • A majority of all UK exporting firms (83%) favour UKEF providing better financing terms for exports of low-carbon goods and services.
  • A majority of UK exporting firms (62%) state that UKEF should provide worse financing terms for exports of high-carbon goods and services.

Ryan Shorthouse, Chief Executive of Bright Blue, commented:

“The cost of living crisis, caused by the sharp increase in the global wholesale price of energy and exacerbated by the justified international response to the Russian invasion of Ukraine, shows why the UK and our allies across the developed world must work towards fully phasing out taxpayer support for international fossil fuel projects, and gas in particular, and cultivate green energy markets. 

“As the UK still holds the COP Presidency until COP27 in Egypt later this year, there is an opportunity for the UK to continue to show bold global leadership on climate change by bringing UKEF into full alignment with the Paris Agreement, and encouraging other countries to do the same with their own Export Credit Agencies.”

Igor Shishlov, Senior Consultant for Perspectives Climate Research, commented:

“The latest climate science unequivocally points to the need to leave most of the known fossil fuel reserves in the ground. In this light, export credit agencies as public finance institutions must reflect climate commitments of their governments and fully phase out support to fossil fuels, including natural gas, and ramp up support to renewable energy. 

“The ongoing energy crisis exacerbated by the war in Ukraine clearly demonstrates that the UK must double down on the clean energy transition for the sake of the environment, energy security and employment. The UK must also use its ongoing COP Presidency to rally other countries to follow suit and speed up the alignment of all public finance with the Paris Agreement.”

UKEF has made significant improvements in the past few years to reduce its contribution to climate change, including the decisive and welcome step made last year to end most support for the development of fossil fuel export projects overseas. Despite this, UKEF is not yet fully in line with the Paris Agreement. The report proposes ten new policies by which the UK can achieve full alignment of its export finance with the Paris Agreement and become the leading model ECA worldwide.

Transparency

  • Recommendation one: Adopt the best international GHG accounting system for all scope 1-3 emissions. At the moment, UKEF does not operate a greenhouse gas (GHG) accounting system. But in its Climate Strategy, UKEF has already committed to implement a Scope 1-3 GHG accounting system. Using a reliable GHG accounting system is crucial to ensure progress towards GHG emissions reduction targets and improve transparency with regards to climate-related disclosures.
  • Recommendation two: Disclose climate-friendly and climate-adverse financing across all of UKEF’s portfolio Currently, UKEF operates no dedicated climate-related financial reporting and it is therefore not possible to determine climate-positive or climate-adverse finance as share of neither new nor outstanding commitments. UKEF can use and build on the EU Taxonomy for Sustainable Activities, considering the latest scientific advances. This would require, for example, UKEF to clarify an exhaustive list of eligible activities under its ‘clean growth’ sectors, which should be based on sector-specific thresholds of the specific economic activity, such as proposed by the EU Taxonomy for Sustainable Activities.
  • Recommendation three: Further enhance Task Force on Climate-Related Financial Disclosures (TCFD) reporting by providing quantitative indicators on GHG emissions. Currently, UKEF only reports qualitative information without quantitative indicators on GHG emissions, GHG emissions intensity, emissions reduction targets, and exposure to fossil fuel assets. While within its Climate Change Strategy UKEF committed to provide the first quantitative disclosure in its second TCFD report for 2021-22, what exact quantitative information would be provided is unclear. We recommend that UKEF clarifies this and reports in its second TCFD report the following quantitative data, as a minimum: new and cumulative outstanding commitments related to fossil fuels; new and cumulative outstanding commitments related to clean energy; scope 1, 2, 3 GHG emissions once they become available; and GHG emissions reduction targets by sector.
  • Recommendation four: Incorporate Taskforce on Nature-related Disclosures (TNFD) for UKEF projects once they become available. We recommend that UKEF considers the developments under the Taskforce on Nature-related Disclosures (TNFD), which aims to provide recommendations for financial institutions to report and act on nature-related risks and opportunities. We recommend that UKEF evaluates the possibility of further extending disclosures to incorporate TNFD recommendations once they become available.

Mitigation I

  • Recommendation five: Adopt a value-chain approach to stop UKEF supporting fossil fuel projects, directly or indirectly. Loopholes that may allow some fossil fuel projects to get export finance support from UKEF still remain. We recommend implementing a full phase out of support for fossil fuels including upstream – such as extraction – and downstream – such as conversion into petrochemical products. This will allow us to consider instances where fossil or renewable energy activities are also supported indirectly. Currently, UKEF does not operate a fossil fuel and/or clean energy reporting methodology.
  • Recommendation six: Exclude all natural gas projects from future UKEF support. UKEF conveys the image of natural gas as a ‘transition fuel’, but the ‘Net Zero Pathway’ by the International Energy Agency states that the new investments into natural gas are not compatible with the special responsibilities of early industrialised countries. We therefore recommend a careful revision of the existing loopholes on fossil fuel financing, with a view to fully phasing out export finance support to all fossil fuel value chains, including natural gas in particular.

Mitigation II

  • Recommendation seven: Adopt new Science Based Target Initiative (SBTi)-approved decarbonisation pathways and targets for all economic sectors which include projects supported by UKEF. UKEF should work closely with – and ultimately get approval from – the Science Based Target Initiative (SBTi), to develop clear decarbonisation pathways and targets for all economic sectors which include projects supported by UKEF, ideally based on the regularly updated and declining annual carbon budgets set by the UK’s Climate Change Committee (CCC).

Climate finance

  • Recommendation eight: Set new targets for UKEF: a) a year-on-year increase for the proportion of climate-friendly financing across all of UKEF’s portfolio, and b) that half of all financing will be climate-friendly as soon as possible. This can be achieved more easily with a robust and transparent reporting system, as outlined in recommendation two. We would also recommend a target of 50% climate-friendly finance over the total portfolio in the short run, in line with the most ambitious targets by the multilateral development banks.
  • Recommendation nine: Introduce a climate-reward system for exporters for UKEF financing, such as smaller premium or interest payments. We recommend devising and implementing an effective climate-reward system across UKEF’s entire portfolio. This could include enabling smaller premium or interest payments for projects that meet UKEF´s ‘clean growth’ eligibility, or other robust climate-friendly activities. This would create an additional incentive for UK exporters of clean technologies.

Engagement

  • Recommendation ten: The UK should build on COP26 momentum to expand the Statement on International Public Support for the Clean Energy Transition and the OECD Arrangement to include phasing out fossil fuel support and closing remaining loopholes. The UK should build on the success of its COP Presidency so far by engaging in both multilateral fora – such as the OECD – and in bilateral exchanges – for example, with China – to further advance a decarbonisation of the global export finance system. An enhanced international commitment to phase out public support for all fossil fuel projects is needed, and the UK needs to take the lead internationally. By the UK demonstrating a full phase out is possible, it can be an example and support other countries to implement full phase-outs of their own, without any loopholes, of all types of fossil fuel projects supported by export finance. 

ENDS

Notes to editors:

To arrange an interview with a Bright Blue spokesperson or for further media enquiries, please contact Joseph Silke at joseph@brightblue.org.uk or on 07948 420 584.

  • Bright Blue’s new report is entitled Greening UK Export Finance. The report is kindly supported by the European Climate Foundation. However, Bright Blue retains complete editorial control over the report. The views in the report do not necessarily reflect the views of the sponsor.
  • The figures, unless otherwise stated, are from Opinium. Total sample was a broadly reflective sample of 750 senior decision makers at UK exporters. Polling was conducted between 12th and 15th November 2020.
  • Perspectives Climate Group is a consultancy specialising in climate and sustainability services based in Germany.