(ODI Global, London, 14 December 2023) This year old report explores the development of Sinosure as an institution and its involvement in China’s overseas lending and the Belt and Road Initiative (BRI). This report makes two main contributions. First, it examines an understudied aspect of China’s BRI financing to show how the Chinese government uses Sinosure to hedge – or protect from – risk in its overseas lending and investment. Second, it contextualises Sinosure within the wider landscape of financial institutions providing guarantees and risk insurance, and the challenge and change that China’s state-backed finance has provoked. In several areas, development finance institutions (DFIs) and export credit agencies (ECAs) are adapting not only to Chinese competition but also to new demands on their mandates. The use of export credit within China’s wider official financing is a challenge to OECD regimes that separately govern finance for trade and for aid. Sinosure and other Chinese Export Credit Agencies offer highly favourable terms and longer-term finance, potentially undermining the ‘level playing field’ of the OECD.
OECD
COP29 outcomes: balancing progress and challenges on the road to climate action
(UN Environment Program, Baku, 4 December 2024) COP29 held in Baku, Azerbaijan, offered an important opportunity for governments and other global stakeholders to put in place the mechanisms, tools and signals required for countries to continue implementing their contributions to the Paris Agreement as urgently needed. The main areas of negotiation were on:
- the design & key elements of future climate financial architecture & the next collective quantified goal (NCQG) on climate finance;
- the rulebook for future international, compliance carbon markets; and
- countries’ collective signaling on mitigation ambition, as follow up to the various energy transition objectives captured in last year’s COP28 ’UAE Consensus’.
As widely reported elsewhere, while opportunities were missed to create the required clarity and determination on finance and ambition, there was some good news, even a breakthrough, on the establishment of government-backed, international carbon markets of the future. This summary highlights the recent, impressive achievements of the UNEP FI-convened net-zero groups, progress on financing climate adaptation, and the implications for financial institutions of some of the summit’s outcomes.
South Korea and Turkey block landmark OECD deal to end fossil fuel subsidies
(Oil Change Int’l, Washington, 20 December 2024) OECD members have failed to pass a landmark deal to end over $40 billion in public subsidies to fossil fuels. Despite last-ditch attempts by senior government and international figures to sway South Korea and Turkey – the only countries blocking the deal – negotiators could not agree on a proposal to restrict export finance to fossil fuels. They will instead focus on a range of measures to improve transparency in export financing. Last year the UK, Canada and EU tabled a proposal at the OECD to end export finance for all fossil fuels, building on a 2021 OECD agreement that ended export finance support for coal plants. In a surprise move, the US recently switched its position at COP29 and came out in support of the proposal, leaving just a handful of countries blocking it.
The International Institute for Sustainable Development (IISD) on December 9th noted: “We have seen the potential of multilateral leadership in export finance before. In 2021, the OECD ended coal-fired power export credit financing, a key milestone in the phase-out of international public finance for coal. Now OECD countries have [had!] the opportunity to replicate this success for oil and gas. This could [have] freed up much-needed public finance to accelerate the uptake of clean energy. Rich countries still provide export credit finance of USD 41 billion per year to oil and gas, following their earlier agreement to end export credit support for coal.
President Joe Biden was poised to back restrictions on international funding for oil and gas projects in a move that could free up billions of dollars for clean energy and crystallize his climate legacy.
ECAs prepare to lock horns over fossil fuel financing
(Global Trade Review, London, 14 October 2024) Ahead of crunch talks within the OECD Arrangement, climate groups are pressuring the US, Korea and Japan to agree to a comprehensive proposal that would halt billions of dollars in fossil fuel financing each year. In recent days, over 40 environmental and social activity groups have written to members of the OECD Arrangement on Officially Supported Export Credits, urging them to expand an existing ban on coal financing to also include oil and gas projects. Export credit agencies (ECAs) are among the world’s largest backers of fossil fuel transactions, often in developing regions such as Asia and Sub-Saharan Africa. Climate groups argue their support – in the form of guarantees, insurance and loans – can be vital in ensuring projects reach financial close. In the past year, the Export-Import Bank of the United States (US Exim) has seen two advisors on its climate board quit over a US$500mn loan guarantee backing oil and gas field expansion in Bahrain, while Japan’s agency has come under fire for financing a new gas field in Western Australia. Friends of the Earth, Oil Change International and BankTrack are among the signatories of the letter, which says it is “unthinkable that OECD agencies continue to pour billions into fossil fuel projects”.
Rich Nations Running Out of Time to Curb Oil and Gas Funding
(Bloomberg, 17 September 2024) A group of developed nations will make a new push to resolve differences amid fading prospects for a deal to restrict funding of foreign oil and gas projects by their export credit agencies. Restricting export credit agencies is seen as a potentially important tool in curbing the flow of financing to fossil fuels projects. Group of 20 nations offered more than $30 billion for such ventures in 2022, led by Canada and South Korea, according to data compiled by Oil Change International, a climate advocacy group.
Campaigners Increasingly Targeting Financial Backers with Lawsuits Against Fossil Fuel Funders
(DeSmog, Seattle, 26 June 2024) Campaigners are increasingly taking out lawsuits against the funders of fossil fuels and other climate-harming activities, according to a new report. In its annual review of climate litigation, published June 26, the London School of Economics and Political Science’s (LSE) Grantham Research Institute on Climate Change and the Environment identifies a modest but growing number of lawsuits challenging the flow of finance to projects that worsen climate change. In total, 33 cases that challenge the flow of funding have been recorded since academics began keeping track nine years ago. Six were filed in 2023. In one significant recent case, human rights and environmental NGO Jubilee Australia challenged Australia’s export credit agency Export Finance Australia and the $7 billion AUD Northern Australia Infrastructure Facility for giving taxpayer-subsidized finance to risky new fossil fuel projects and related ventures that would otherwise not go ahead. Jubilee Australia wants to force the public bodies involved to disclose impact assessments for these investments. French bank BNP Paribas also recently said it would stop funding new gas projects as the risk of litigation rises. Campaigners, including Oxfam France, had sued the bank for financing fossil fuels in the first-ever climate-related lawsuit against a commercial bank. However, activists noted that BNP cut out direct loans, and it still supports oil and gas through indirect loans to other involved companies and by underwriting bonds. A previous claim from 2020 against Australian banking group ANZ confirmed that climate change was relevant to responsible business practices under the OECD guidelines, but the organization did not require companies to divest from fossil fuels. The OECD guidelines are just one example of “soft law” – agreements that are influential but not legally binding – groups use to try to push corporations and their funders in a greener direction.
US Congress Examines Role of EXIM Amid Intensifying Economic Competition with China
(US Congress, Washington, 24 June 2024) The US Congress House Financial Services Subcommittee Chairman on National Security, Illicit Finance, and International Financial Institutions, led by Chairman Blaine Luetkemeyer (MO-03), held a hearing entitled “The Role of the Export-Import (Ex-Im) Bank of the United States Amid Intensifying Economic Competition with China.” He noted ““That threat is the bid for global economic domination posed by Communist China. Unlike the United States, the CCP does not subscribe to the rules-based order that has governed trade and export credit financing for nearly a century. The CCP demonstrates daily that it plays by its own rules and will do anything to gain footholds in strategic sectors vital to security. China’s highly aggressive actions in export credit financing blend beyond economic advancement and are clearly an effort to enhance its global power and economic might. It is critical, the United States compete and win in this arena against China.”
Deal to limit ECA oil and gas funding abroad hinges on US
(E&E News, Arlington, 17 June 2024) The fate of an international plan to end a major funding source for fossil fuel projects could be decided this week by U.S. officials. Some of the world’s richest countries will meet behind closed doors starting Monday to discuss a European Union-led proposal to end loans and guarantees from their export credit agencies to oil and gas projects. It’s part of an evolving arrangement under the Paris-headquartered Organisation for Economic Co-operation and Development — a group of 38 countries that collaborate on issues of trade and finance — and follows a 2021 deal to end such investments in coal. If the countries under the arrangement reach a new agreement, it could help squelch the flow of billions of dollars into polluting energies. If they don’t, the proposal could get punted to the next round of talks in November, when former President Donald Trump, the presumptive Republican nominee for president, could be re-elected — which would threaten any agreement to restrict fossil fuel investments. “All eyes are on the U.S.,” said Kate DeAngelis, deputy director of international finance at the climate advocacy group Friends of the Earth. “Without the U.S coming to the table, we’re not going to see Japan and Korea get in line. And so I think if nothing happens, then that’s telling in and of itself that it’s a failure of U.S. leadership.”
UKEF’s implementation of the Equator Principles (1 April 2023 to 31 December 2023)
(UKEF, London, 25 June 2024) UK Export Finance (UKEF) adopted the Equator Principles (EPs) on 31 March 2016, joining what now comprises 128 other banks and Export Credit Agencies (EP Financial Institutions or EPFIs) in applying this global guidance for environmental, social, and human rights (ESHR) risk management when financing projects. During the reporting period 1 April 2023 to 31 December 2023, UKEF contributed to the planning and management of the mid-year workshop and celebration event that was held in London to mark 20 years of the Equator Principles. UKEF continues to follow the OECD Recommendation on Common Approaches for Officially Supported Export Credits and Environmental and Social Due Diligence (OECD Common Approaches), currently dated 25 March 2024, which applies alongside the Equator Principles as outlined in the Policy and Practice on Environmental, Social and Human Rights due diligence and monitoring (ESHR Policy). The report lists projects supported within the scope of the Equator Principles and provides links to documents on social impacts, social risks, project-related human rights and sustainability.
Meeting Statement – Heads of G7 ECAs
(SACE, Rome, 19 April 2024) The leaders of official export credit agencies from the G7 nations – Canada, France, Germany, Italy, Japan, the United Kingdom, and the USA – met on April 16th, in Tokyo, hosted by Nippon Export and Investment Insurance (NEXI), to discuss recent business trends and challenges. In the light of the increasing global geopolitical risks, the G7 ECA Heads have reaffirmed their role in protecting and promoting international trade and investment, and have recognised the importance of risk management for ECAs. The G7 ECA Heads recognise the need to enhance resilience to the impacts of climate change and to support businesses in responding to global climate issues. Acknowledging the need for urgency, the G7 ECA Heads agree to continue to proactively engage in a review of climate-related provisions under the framework of the OECD Arrangement and the Common Approaches for Officially Supported Export Credits and Environmental and Social Due Diligence. The G7 ECA Heads acknowledge the important role that ECAs continue to play in supporting their own exports and foreign investments and confirm that now, a variety of roles are expected, including promoting inclusive and sustainable trade and investment in developing countries, emerging markets and more established economies, and contributing to the realization of various policy agendas of their respective governments. In particular the G7 ECA Heads underlined their commitment to supporting Ukraine and reaffirmed their role in mobilizing private sector funds, and to continue this dialogue at the next Ukraine Recovery Conference on 11 June 2024 in Berlin.
