Index for May 2020

Volume 5, Issue 19

  • ECAs and emergency COVID-19 budgets

    (ECA Watch, Ottawa, 30 May 2020) This month's news is dominated by vast amounts of export credit funding approved to shore up companies facing an international collapse of consumption, production and trade resulting from the world-wide COVID-19 pandemic. How much government support is going to companies vs unemployed workers is difficult to determine as the press tends to report overall corporate welfare budget estimates rather than overall support for workers. The debate on the shape of the future includes the use of continued ECA support for fossil fuels or preparation for the coming climate change crisis. Another element is the increase in short-term (< 2 years) ECA support, normally covered by commercial lenders, which has been mounted by many governments and is not subject to many of the environmental, corruption and social standards of ECAs subscribing to the OECD "Gentlemens' Agreement" designed to level the playing field of corporate subsidies to national exporters.

  • (Global Trade Review, London, 28 May 2020) The International Chamber of Commerce (ICC) has warned that as much as US$2 to 5 trillion of trade credit will be needed to return trade volumes back to 2019 levels in the wake of the Covid-19 crisis in order to enable volumes and demand return to the global economy. The ICC has underlined the need to void pre-existing legal requirements for key trade documents to be presented in hard-copy paper format in order to get trade finance to where it is most needed. Regulatory treatment of trade finance is also in the ICC’s sights, with the recommendation that risk calculations be lowered despite the expected drop in trade volumes between 13% and 32% and an increase in defaults.

  • (Global Trade Magazine, Dallas, 26 May 2020) Virginie Fauvel of Euler Hermes notes: As governments, leaders and industries around the globe grapple with the effects of the pandemic, one thing is certain: the fragility of businesses has been exposed... Will we see a paradigm shift in the way businesses transform their strategies and priorities? As we shift into a post-pandemic world, will the traditional drivers of a capitalist society (productivity, profit and growth) be re-evaluated by businesses? We’re already seeing younger generations less attracted to capitalist values... We’ve already seen governments, businesses and individuals come together to encourage solidarity and altruism... with business repurposing their products and services to help fight the pandemic and individuals stepping into action to shop for their neighbors and set up support systems all while celebrating those on the frontlines of healthcare and emergency services each night. Meanwhile, as the following article notes, Friends of the Earth and Oil Change International are saying: "As G20 governments prepare historic levels of public finance in response to COVID-19 we need them to break from the past and make sure this money goes to a just and sustainable recovery instead."

  • (Friends of the Earch, Washington, 28 May 2020) Right after the mostly-rich and powerful G2O countries signed the Paris Agreement with the goal of limiting global warming to 1.5ºC, they went home and continued with the business-as-usual public finance policies that directly undermined this goal. The world’s largest commercial banks are financing almost US$700 billion a year for oil, gas, and coal, with US$77 billion coming from public finance for fossil fuels, of which US$40 billion comes from ECAs, vs only US$2.9 billion from ECAs for clean energy... The G20 export credit agencies (ECAs), development finance institutions (DFIs), and the multilateral development banks (MDBs) FOE was able to track in its new report are still only a small fraction of all public finance for energy. Worldwide, 693 public banks own assets worth $38 trillion, and there is an overall estimated $73 trillion in public finance assets when central banks, sovereign wealth funds, pensions, and multilateral banks are also included. This also does not include direct subsidies through fiscal and tax measures that governments provide — for the G20 this support for fossil fuels is estimated at $80 billion a year. But as G20 governments prepare historic levels of public finance in response to COVID-19 we need them to break from the past and make sure this money goes to a just and sustainable recovery. For example, Spain has (alongside other promising measures from a wealth tax to an end to any new licenses for oil and gas) mandated their State and public institutions to divest from any holdings in companies whose activities include the extraction, refining and processing of fossil fuels.

  • (Oil Change International, Washington, 22 April 2020) This briefing outlines why continuing to rely on fossil fuels, in particular oil and gas, is not compatible with long-term recovery. Governments now face a choice: fund a just transition away from fossil fuels that protects workers, communities, and the climate — or continue funding business-as-usual toward climate disaster. Even before the COVID-19 crisis, the fossil fuel industry was already showing signs of permanent decline and it has fostered growing inequalities in and between countries, and has destabilized the climate in a matter of decades. We know that there is enough embedded carbon in already operating oil, gas, and coal production to take us beyond 1.5ºC or even 2ºC, an increase in temperature which affects ecosystems and communities around the world, things we depend upon and value — water, energy, transportation, wildlife, agriculture, ecosystems, and human health, i.e. extreme weather disasters, food production, air quality, rising oceans, etc.

  • (Above Ground, Ottawa, 4 May 2020) 2020 is a pivotal year for wealthy nations to ramp up their climate action plans, spelling out how they’ll make the deep emissions cuts needed between now and 2030. Instead, states are bolstering the very industries that must be phased out to avert disastrous climate breakdown, as high-carbon sectors push for government aid in response to the economic crisis. Canada’s oil and gas lobby has asked for a bailout of up to $30 billion. On April 17 Ottawa announced a package that includes new loans and guarantees to mid-sized oil and gas firms, to be delivered by Export Development Canada (EDC) and the Business Development Bank of Canada (BDC), as well as funding for clean-up of spent wells and loans for emissions reductions. It also indicated further credit support for the largest oil and gas companies is still being planned. Oil and gas companies also stand to benefit from the aid that Ottawa has made available across sectors, such as the 75% wage subsidy program and the $65 billion Business Credit Availability Program also from EDC and BDC. A broad base of Canadian academics and civil society advocates have argued that economic support measures should directly benefit workers, not companies, and they mustn’t delay the phaseout of an industry that’s fuelling the climate emergency, which already claims hundreds of thousands of lives each year. Observers have long called attention to the lack of transparency in EDC’s operations, with a recent Globe and Mail exposé reporting a “pattern of secrecy” and “lax supervision” of the agency by the federal government.

  • (Toronto Star, Ottawa, 4 May 2020) EDC will lend between $250 and $500 million to build the Coastal GasLink, a natural gas pipeline that sparked a national protest movement and reckoning over the Liberal administration’s commitment to Indigenous reconciliation. The company building the 670-km pipeline, Calgary-based TC Energy, said in a statement to the Star that the deal includes a “syndicate of banks” that will fund the majority of the $6.6-billion project’s construction cost. The deal is entirely unwelcome to Na’Moks, a hereditary chief of the Wet’suwet’en nation in northern British Columbia. The Wet’suwe’ten opposition gained national prominence after RCMP arrests this winter triggered a huge solidarity movement that saw Mohawk demonstrators block rail lines in Ontario and Quebec and supporters stage rallies in cities across the country. Some elected band councils signed agreements to support the project but the Wet’suwe’ten traditional leadership has spearheaded opposition to the pipeline for years.

  • (Lexology, London, 30 April 2020) While businesses lobby governments for support, there have been suggestions that ECAs may need to step up to fill a reduced commercial debt capacity for aircraft. During the 2008-2009 global financial crisis, European ECAs financed up to a third of annual Airbus delivery output and the Export-Import Bank of the United States supported around 20% of Boeing deliveries. Given the ECAs’ unique roles in providing state supported finance, could the current crisis provide an opportunity for governments to affirm their commitment to promoting environmental, social and governance (“ESG”) accountability? Policy makers are no doubt acutely aware that as public attitudes to ESG issues have been changing, so too have the reputational risks of being on the ‘wrong’ side of the ESG debate increased. Most recently this has been borne out in the aviation industry by the rise of ‘flightshaming’ and the fall-out from the grounding of Boeing’s 737 Max and the scrutiny surrounding Boeing’s use of share buy-backs. The reputational impact of ESG issues has been an issue for UKEF as recently as March 2020, when UKEF was accused of breaching OECD guidelines governing multi-national organisations in its decision to fund fossil fuel projects overseas. NGO Global Witness lodged a complaint with the OECD alleging that UKEF failed to adequately consider climate-related risks. The complaint, which is the first of its kind against an ECA, will see UKEF enter a 'specific instance' review process mediated by the UK national contact point at the OECD, which cannot compel enterprises to develop climate risk strategies, but which can publicly state that OECD guidelines have been broken. In many countries, government financial aid packages have prompted heated public debate as to what businesses should be considered ‘worthy’ of government support.

  • (Client Earth, London, 12 November 2019) As the European Investment Bank (EIB) Board of Directors prepares to vote on excluding natural gas from its lending policy, lawyers have issued a clear warning: continuing to finance fossil fuels would breach the Bank’s legal duties. [While facing a different regulatory regime, as ECA support for fossil fuels grows, might they face legal action?]

  • (Reuters, Tokyo, 1 May 2020) Japan’s government, along with JBIC, has long been criticized for backing exports of coal-power technology and equipment by environmental groups as the world moves to cut emissions to combat climate change. However, JBIC Governor Tadashi Maeda was quoted as saying last week that the bank “will no longer accept loan applications for coal-fired power generation projects.” Nevertheless, Japan’s government-owned export credit agency said it has not changed its policy on financing coal power plants, muddying a message from the bank’s head that environmental groups had hailed as a major shift on the polluting fuel.

  • The South Korean government is backing a $2 billion bailout of the country’s biggest coal plant manufacturer, despite promises to end coal financing. State-owned Korea Development Bank (KDB) and the Export-Import Bank of Korea, the country’s export credit agency, have agreed the package of emergency loans for Doosan Heavy Industries & Construction over the last month.

  • (Europa, Brussels, 18 May 2020) The European Commission has approved, under EU State aid rules, a €903 million Belgian reinsurance scheme to support the trade credit insurance market in the context of the coronavirus outbreak. Trade credit insurance protects companies supplying goods and services against the risk of non-payment by their clients. Given the economic impact of the coronavirus outbreak, the risk of insurers not being willing to maintain their insurance coverage has become higher. The Belgian reinsurance scheme, with a total budget of €903 million, ensures that trade credit insurance continues to be available to all companies, avoiding the need for buyers of goods or services to pay in advance, therefore reducing their immediate liquidity needs.

  • (Reuters, Milan, 15 May 2020)) Fiat Chrysler is in talks with Intesa Sanpaolo (ISP.MI) over a 6.3 billion euro ($6.8 billion) loan backed by Italian ECA SACE to help the automaker weather the coronavirus crisis. Fiat Chrysler (FCA) has gradually restarted its operations in Italy since the end of April. The crisis erased demand for new vehicles and pushed manufacturers to halt most production, burning cash. The loan, which is part of emergency liquidity measures the government is making available to Italy’s businesses, must be approved by Intesa Sanpaolo’s board, the source said. FCA, Intesa and SACE declined to comment. FCA and Peugeot owner PSA (PEUP.PA), which have struck a binding merger agreement to create the world’s fourth largest carmaker, earlier this week scrapped their planned ordinary dividends on 2019 results, worth 1.1 billion euros each, due to the COVID-19 pandemic. SACE approved state guarantees covering 80% of the bank loan after the loan was approved by Italy’s biggest retail bank Intesa Sanpaplo.

  • (Automotive World, London, 20 May 2020) Volvo has signed a new 2-year US$1.1 B revolving credit facility with a 1-year extension option with a group of Nordic banks (DNB, Nordea, SEB and Swedbank (coordinator)) as well as a new 2-year US$424 M credit facility with a 1-year extension option with the Swedish Export Credit Corporation (SEK). Both facilities are partly guaranteed by the Swedish Export Credit Agency (EKN) as they utilize the new working capital credit guarantee set up as a response to the Covid-19 pandemic.

  • (Bank Track, Paris, 6 May 2020) Reclaim Finance has published the most accurate analysis tool ever released regarding policies adopted by French financial players in the coal sector. The aim is twofold: to facilitate the comparison between policies on the same public criteria and to allow clients, media and other stakeholders to assess the gap between existing practices and the objective of limiting global warming to 1.5°C. At the moment, only five French financial players have a robust coal phase-out policy. At least 40 French financial institutions, which belong to 25 financial groups, now have policies restricting their financial services to the thermal coal sector. These numbers are expected to increase following the commitment made in July 2019 by the Paris financial centre that all French financial players must adopt a coal phase-out policy by mid-2020.