As supporting and accelerating client net-zero ambitions becomes an essential function of banks in transitioning the economy towards a low carbon future, Export Finance is emerging as a critical tool in directing capital flows towards projects with a sustainable impact.
In 2018, the International Chamber of Commerce set up a Global Export Finance Committee Sustainability Working Group to help showcase how export finance can contribute to global challenges. The Working Group strongly contributed to the publication of a White Paper in September as “a call for action to Export Finance market participants to ensure that the industry contributes meaningfully to the sustainability agenda and plays an important role addressing the global challenges we are all facing.”
“By its very nature, building on Export Credit Agency backed financing, Export Finance contributes in fostering sustainable logics of investment and trade while delivering positive and lasting impact on the real economy,” said Yasser Henda, Global Head of Export Finance at BNP Paribas, and a contributor to the White Paper.
By its very nature, building on Export Credit Agency backed financing, Export Finance contributes in fostering sustainable logics of investment and trade while delivering positive and lasting impact on the real economy
Yasser Henda, Global Head of Export Finance at BNP Paribas, and a contributor to the White Paper
What is Export Finance?
Export Finance supports the development of real assets and projects by providing tailored financial solutions, generally backed by OECD sovereign guarantees, to a great diversity of borrowers: Corporates, Public and Sovereign entities, green and brownfield Project companies.
This includes the financing of infrastructure projects across a wide range of sectors such as energy, mobility, telecoms, water, and healthcare.
Export finance agreements are typically supported by public Export Credit Agencies (ECA) or multilateral institutions. This helps to reduce uncertainty, credit risks and boost economic activity both domestically and among trading partners. It is also perfectly suited to support the development of disruptive technologies. Moreover, in order to be eligible for ECA-financing, clients and projects usually need to comply with ECA “do not harm” ESG policies. As such, banks & ECAs must conduct rigorous screenings along with strict control of the use of proceeds, as per OECD rules.
Tackling challenges in emerging markets
Given the enhanced level of risk management offered by Export Credit Agency (ECA) backing, Export Finance benefits from greater room for manoeuvre than other traditional financing solutions. This makes it particularly well suited as an instrument for investing in developing countries with higher political or economic risk, or where capital investment offers may be limited.
In the long term, Export Finance has strong potential to tackle major economic and social challenges through large-scale and transformative infrastructure projects. For example, in 2018 and 2019 the Senegalese government, in partnership with BNP Paribas, accessed Export Finance for the construction of transmission lines managed by Senelec, Senegal’s national electricity company.
The ability of Export Finance to offer concrete solutions that bridge the infrastructure gap in some of the world’s most disadvantaged regions – and help create essential services for under-served communities – makes it a key component of global Impact Investing dynamics.
Supporting sustainable transition strategies and the SDGs
Export finance is also considered a competitive solution in developed markets, often harnessed as an alternative or complementary solution to bond issuances. It is a competitive and adequate solution for developed countries, as well as for investment-grade companies, wishing to take a step further in their sustainable transition strategy.
Export Finance can also be a key tool in addressing several of the United Nations’ 17 Sustainable Development Goals (SDGs), namely:
- SDG 1: No poverty
- SDG 6: Clean water and sanitation
- SDG 7: Affordable and clean energy
- SDG 9: Industry, innovation and infrastructure
- SDG 10: Reduced inequalities
- SDG 11: Sustainable cities and communities
As a multi-sector and multi-jurisdictional product, the Export Finance market is dynamic in nature. It adapts to trends in global capital good supply chains, and is increasingly a prime catalyst of capital flows to deals that support clients’ sustainable transition strategies, and the global move towards more sustainable business models.
As such, it is not dissimilar to blended finance which mobilises multiple actors across the economy and society – from government, investors and banks, to communities, non-governmental organisations (NGOs) and philanthropists – to provide access to financing to achieve the SDGs.
Supporting a more virtuous cycle of finance
BNP Paribas is committed to fostering sustainability within the Export Finance industry. The Bank is an advocate for comprehensive and greater incentives at an ECA level, promotes ECA-backed solutions that are compatible with sustainable finance products and continues to develop in-house expertise to accompany its clients in their transition strategies.
Recent transactions include:
- August 2021: $600 million Transition Export Development Guarantee for Wood Plc, the first-ever green transition loan backed by UK Export Finance (UKEF).
- July 2021: EUR 79 M Social Loan to MoF of Burkina Faso for the Urban Mobility Project of Grand Ouaga, for the financing of a turn-key bus public transportation system in the capital.
- June 2020: $743 million green loan for National Grid, the first-ever multi ECA-covered green loan to finance the construction of the Viking Link power interconnector between the UK and Denmark.
- June 2020: €700 million Covid-19 Response Bond for Corporación Andina de Fomento (CAF), the Development Bank of Latin America, and the first bond of its kind issues in Latin America.
Read more on Sustainability in Export Finance
Sustainability in Export Finance – ICC – International Chamber of Commerce (iccwbo.org)