Index for November 2021

Volume 20, Issue 11

  • (Politico, Glasgow, 4 November 2021) The United States, the U.K. and some 20 other countries and financial institutions pledged on Thursday to stop public financing for most overseas oil and gas projects by next year, though the agreement included wide latitude for participants to set their own exemptions and many of the world's leading backers of those projects declined to sign on. The pledge is limited to ending financing of "unabated" oil and gas projects, and would allow those that include carbon capture and sequestration technology. A senior Biden administration official told POLITICO the measure includes exemptions, and that the Biden administration had not settled on how it would instruct its finance aid organizations like the U.S. Export-Import Bank. How tight any carve-outs are for oil and gas is potentially significant for Ex-Im, which approved $5 billion in fossil fuel finance the last two years, environmental group Friends of the Earth said in a statement. "While this is welcome progress, countries, especially the U.S., must hold firm to these commitments, shutting off the spigot to fossil fuel companies like [Mexico's] Pemex and Exxon," said Kate DeAngelis, manager of Friends of the Earth's international finance program. She also called out "laggards like Japan and Korea" to join the new pledge.

  • (Oil Change Int'l/FOEUSA, Washington, October 2021) This 36 page reprort documents how G20 countries and the multilateral development banks (MDBs) they govern in 2018-2020 provided at least US$63 billion per year in international public finance for oil, gas, and coal projects. This fossil fuel finance was 2.5 times more than their support for renewable energy, which averaged only US$26 billion per year. This continued support for fossil fuels from trade and development finance institutions counters G20 countries’ commitments under the Paris Agreement to align financial flows with a safe climate future as well as their 2009 commitment to phase out fossil fuel subsidies. It also undermines the effectiveness of climate finance, which is still not delivered at either the scale promised (US$100 billion per year from 2020) or needed. ECAs continue to be the largest supporter of international fossil fuel projects, providing billions annually in 2018-2020: ECAs provided an average of US$40.1 billion annually to fossil fuels — 82% of ECA support. This 36 page report shows that the science is clear — governments must rapidly wind down fossil fuel production and use to avoid the worst climate impacts, noting that the recent Intergovernmental Panel on Climate Change (IPCC) report is a “code red for humanity.”

  • (Global Trade Review, London, 24 November 2021) Seven European countries have pledged to promote reforms and encourage green incentives in the export credit sector, but dashed campaigners’ hopes that they would axe public finance for fossil fuels more quickly than the end of 2022 deadline set at the Cop26 conference. The Export Finance for Future (E3F) coalition, initially comprising Denmark, France, Germany, the Netherlands, Spain, Sweden and the UK, held its second virtual meeting today, hosted by the Dutch government. Belgium, Finland and Italy also joined the alliance today, Dutch state secretary for finance Hans Vijlbrief told the summit following the nations’ closed-door talks. A statement expected after the meeting had not been published as of press time, but a draft seen by GTR said the E3F countries would collaborate on strategies to meeting a pledge signed by each at the Cop26 climate change summit to end public finance support for fossil fuels by the end of 2022. The E3F members provided €20bn in export finance for fossil fuel projects overseas between 2018 and 2020, according to data cited by Oil Change International, a campaign group, and ODI, a think-tank. This compares to €17bn for clean energy projects over the same period. Vijlbrief indicated that attendees at the closed-door meeting endorsed support for natural gas beyond the end of the [Cop26] 2022 deadline. “We all know gas will play a role for a couple of years in our energy supply, that’s no secret,” he said. Peder Lundquist, chief executive of EKF, Denmark’s ECA, told the summit that “logically you need some kind of transition”, pointing to natural gas as a “stable” energy source for power grids in less-developed countries that would struggle to handle a rapid shift to renewables. Deputy assistant for export finance at France’s Treasury directorate, Paul Teboul, said his government does not plan to end support for upstream gas projects until 2035.

  • (Guardian, London, 13 November 2021) A new alliance of financial institutions is committed to funding the changes necessary to avert climate catastrophe. Alliance Chair Mark Carney notes that six years ago, in Paris, countries reached an historic agreement to limit the global temperature rise to less than 2C, targeting 1.5C. "In finance, we launched the task force on climate-related financial disclosures so that companies would disclose their climate-related risks, allowing finance to measure what matters." Despite these breakthroughs, in the years that followed, action didn’t match ambition. Few countries pursued the necessary policies, and business investment in decarbonisation was limited. Too many in finance thought that the climate crisis was someone else’s problem. People will no longer tolerate worthy statements followed by futile gestures. In April, we launched the Glasgow Financial Alliance for Net Zero (GFANZ), which now covers the entire waterfront of finance: banks, insurers, pension funds, export credit agencies and asset managers. It comprises more than 450 leading financial institutions from 45 countries. Its members have committed to managing their assets, which total more than $130tn, in line with achieving 1.5C. The total cost of the global transition is estimated to be about $4tn every year for the next three decades, so there are now more than enough readily available resources to do the job. While this is a watershed achievement, some are understandably sceptical. After all, if governments didn’t follow through after Paris, why would finance after Glasgow? [For example, in another news item, the Bureau of Investigative Journalism has reported that HSBC, on behalf of a group of 12 banks on Prince Charles’s Financial Services Taskforce, coordinated efforts to try and water down GFANZ action on climate change. The Bureau details that HSBC lobbied Mark Carney’s Net Zero Banking Alliance to: remove the list of sectors that must be included in the first round of target-setting; set targets only for sectors where there are “credible transition pathways” to a net-zero future and delay until 2025 or 2030 the deadline for banks to set targets for some carbon-intensive sectors, instead of 18 months from signing the NZBA commitment.]

  • (Morningstar, Chicago, 9 November 2021) Capital critical to funding the greening of utilities and other industries makes the financial industry a key player in curbing global warming. At a global climate summit last week, big banks, institutional investors, insurance companies, and regulators announced that the amount of capital controlled by institutions [which claim to be] committed to net-zero initiatives now tops $130 trillion, up from $5 trillion in 2020, according to the Glasgow Financial Alliance for Net Zero. That is about equal to the $100 trillion to $150 trillion amount required to transform the economy to a net-zero by 2050, the group claims. Banks, insurers, pension funds, asset managers, export-credit agencies, stock exchanges, credit rating agencies, index providers, and audit firms have committed to achieving net-zero emissions by 2050 at the latest and plan to report progress and financed emissions annually. For now, the impact on the finance industry itself isn’t clear. Lenders will still be looking for a good return and are already funding projects “that provide an appropriate return". [i.e. they have to make money if they're going to save the planet] How different portfolio companies will reduce emissions can be fraught, as they are struggling with their own net-zero plans. Dan Dorman of Calvert notes that while many of the largest banks had already committed to decarbonizing their portfolios, his conversations with executives suggest “they really don’t have details [yet] about how to land this plane.” There is also some debate about whether the group is double-counting the money that it claims is available.

  • (Lexology, London, 18 November 2021) Discussion of hydrogen fuel has become increasingly prevalent over the past few years. The increased push to reach net zero targets, as highlighted in the Government's newly published 'Net Zero Strategy: Build Back Greener', has brought hydrogen back into popular discussion. New technological innovations look to be making hydrogen energy cleaner, cheaper and more accessible for industry. This may be opening new doors for the element. How will this unprecedented scale of energy innovation investment be funded? Historically, groundbreaking energy technologies have relied upon significant government subsidies, supported by bankable project financing. Can hydrogen replicate the project finance model? If not, where will the money come from? The current funding for investments into hydrogen technologies is found largely in government or university research and development grants and corporate venture equity. There is very little hydrogen being funded through debt finance. Hydrogen, however, is an energy source that still requires significant investment; both in production (for example, developing effective and cost-viable carbon capture and storage facilities to accompany blue hydrogen production) and in delivery and use (for example, in getting gas infrastructure and networks, consumer products and energy storage ready to facilitate a hydrogen market).

  • (Reuters, London, 10 November 2021) The standard setter for global trade finance flows has proposed a new set of rules to define sustainability in the trade finance arena, worth some $5 trillion a year, an executive told Reuters. While governments and business sectors move quickly to set guidelines for some types of sustainable finance, there are no standards for trade finance. Those rules would apply to a third of global trade. Agreeing on a common rulebook could help direct more trade flows toward efforts that reduce climate-warming emissions and that also meet the United Nations' development goals, said Andrew Wilson, policy director at the International Chamber of Commerce (ICC).

  • (Arab News, Jeddah, 18 November 2021) The Abu Dhabi National Oil Company (ADNOC) signed a $3 billion loan agreement with Japan's export credit agency and four other lenders, Reuters reported citing JBIC. The Japan Bank for International Cooperation (JBIC) is providing $2.1 billion and Sumitomo Mitsui Banking Corporation (SMBC), the Tokyo branch of HSBC, Mizuho and MUFG are providing the rest, JBIC said in the statement. "This facility is intended to provide necessary support to ADNOC in ensuring stable imports of crude oil by Japanese companies," JBIC said.

  • (Lloyd's List, London, 23 November 2021) The shipping industry is going to rely more on Chinese financing as those vessels that fall short of environmental standards become less attractive for traditional lenders, executives say. Shipowners say China is important for finance when it comes to renewing and expanding fleets, and would play an instrumental role for those vessels that will soon become unfinanceable by traditional banks.

  • (Eurasia Review, Albany, 13 November 2021) Bangladesh initiated its nuclear program in 2013 by signing a treaty with Russia that opened up a new avenue in their bilateral cooperation. At that time, the two countries signed a state export credit agreement to implement a nuclear project in Bangladesh. The work on the Rooppur plant started with the direct financial and technical cooperation of Russia. There are garment factories in Bangladesh which are producing in huge quantities. So, Bangladesh needs electricity. In 2009 the power generation was 3200 MW; now it has exceeded 20,000 MW. Two 1200-MW capacity reactors are being set up at Rooppur. Once the first nuclear power plant in Bangladesh begins production, it will kick-start another developmental revolution in the country.

  • (Bloomberg, London, 14 November 2021) The U.K. will announce a new export target this week of 1 trillion pounds ($1.3 trillion) per year by 2030 as part of Prime Minister Boris Johnson’s move to overhaul its export strategy to show the benefits of leaving the European Union. A new “made in U.K., sold to the world” campaign will also be launched, as well as initiatives to boost overseas trade by providing export-linked loans and access to expertise and advice, the newspaper said. U.K. Export Finance, the government’s export credit agency, will be allowed to back larger loans for foreign or domestic companies that want to start shipping from the U.K., the Financial Times said, in a bid to attract foreign investment to the country. Previous Conservative governments in the U.K. failed to achieve the same export target by 2020, and the country only increased overseas sales to 689 billion pounds by 2019 before the pandemic hit.

  • (JD Supra, Sausalito, 15 November 2021) Africa is a priority for Biden administration agencies the International Development Finance Corporation and EXIM. As of the end of 2020, DFC had invested approximately US$8 billion (approximately 25 percent of its total portfolio) across more than 300 projects on the continent. During 2009 – 2019, EXIM supported US$12.4 billion of transactions to sub-Saharan Africa,11 and the region is home to EXIM's largest commitment to date. Moreover, EXIM is a long-time player in Africa, with experience dating back to the 1940s. The agency is currently open for business in 44 of the 49 countries across sub-Saharan Africa. In March 2020, it approved a US$91.5 million transaction for electrification in Senegal.12 Two months later, the agency approved its largest transaction to date: a US$4.7 billion credit (direct loan) supporting exports of US goods and services with more than 60 US suppliers to assist the development and construction of an integrated liquefied natural gas project on the Afungi Peninsula in northern Mozambique.13 EXIM made its commitment alongside those from almost 20 other ECAs and DFIs, which offered an aggregate of US$16 billion in loans.

  • (CH-Aviation, Stansstad, 2 November 2021) British Airways has reached an agreement with UK Export Finance (UKEF) and a syndicate of banks for a five-year Export Development Guarantee committed Credit Facility (UKEF Facility) of GBP1.0 billion pounds (USD1.37 billion). According to parent firm IAG International Airlines Group, this is in addition to a GBP2.0 billion (USD2.74 billion) UKEF guaranteed facility that was announced in December 2020 and drawn in March 2021. IAG, which aside from British Airways also owns Iberia, Vueling Airlines, Aer Lingus, and LEVEL, said that as of the end of September, its total cash pile stood at a "strong" EUR10.6 billion euro (USD12.26 billion).

  • (AME Info, Dubai, 7 November 2021) A Swedish aviation company, OceanSky Cruises, announced that it will start cruises to the North Pole aboard luxury airships starting from 2024. The aviation industry made up 2.5% of the total CO2 emissions in 2018 alone, or double the amounts since the mid-1980s. Now, a Swedish aviation company, OceanSky Cruises, announced it will start cruises to the North Pole aboard luxury airships starting from 2024. Norwegian export credit agency Eksfin is playing a major role in accelerating the ‘green shift’ at sea, providing loan guarantees approaching €1 billion ($1.16 bn) for the construction of 35 eco-friendly vessels over the last four years, including ‘Le Commandant Charcot’.

  • (Reuters, Vilnius, 19 November 2021) Lithuania will sign a $600 million export credit agreement with the U.S. Export-Import Bank next week, Economy Minister Ausrine Armonaite told Reuters, days after China warned it would "take all necessary measures" after Lithuania allowed Taiwan to open a de facto embassy. China demanded in August that the Baltic state withdraw its ambassador to Beijing and said it would recall China's envoy in Vilnius after Taiwan announced its office would be called the Taiwanese Representative Office in Lithuania.

  • (Global Trade Review, London, 10 November 2021) The OECD has relaxed down payment rules for transactions involving export credit agencies (ECAs) in emerging markets, in the wake of what it calls a “market failure” in the private sector. Under the new rules, the OECD Arrangement on Officially Supported Export Credits has slashed the down payment requirement from 15% to 5% for sovereign borrowers in developing markets, so long as the transaction is guaranteed by a ministry of finance or central bank. The policy, which comes into immediate effect, thereby also increases the maximum amount participating ECAs can officially support from 85% to 95% of the total export contract value.

  • (Eurasia Review, Albany, 10 November 2021) Russia’s weak economic presence in Africa has become a thing of concern for some experts in the country and they wonder why the nation is not aggressive with this like its ally, China. Smaller countries such as Turkey is visibly broadening its economic influence and so are a number of Gulf States. In July 2021, participants at the Association of Economic Cooperation with African States (AECAS), established under the aegis of the Secretariat of the Russia-Africa Partnership Forum (RAPF), agreed that lack of financial support was the major reason for this. The forum, which had in attendance some leading Russian companies and banks, discussed an effective system of financing projects and supporting investment in Africa. Nikita Gusakov, Head of the Russian Export Credit and Investment Insurance Agency (EXIAR), reiterated that Africa was a priority for the agency, outlining a number of deals that EXIAR has been involved in on the continent.