Export Finance has a key role to play in promoting sustainability and supporting the energy transition, in both emerging and developed markets.
The new economy, a model focused on sustainability, new technology, energy security and industrial sovereignty is the reality we live in. In a globally interconnected world, concerns are growing of increased fragmentation, the emergence of opposing trade blocks, and disruption to investments and flows of goods, services, capital, data and people. In this complex economic, financial and geopolitical environment, governments are again stepping up.
Investments and trade finance are known to be particularly vulnerable in times of economic crisis and geopolitical instability. The steady support of financing from Export Credit Agencies (ECAs) and Development Finance Institutions (DFIs) remains more than ever a counter-cyclical catalyst to mobilise much needed capital. During the global Covid pandemic in 2019-21 and in the run-up to the 26th UN Climate Change Conference (COP26) in autumn 2021, these structures became increasingly important to government policy making. Financing has gradually been directed at policies supporting the implementation of the twin transitions of green and digital, as well as sectors deemed of strategic importance to national security.
BNP Paribas, with its strong global franchise in Export Finance and unmatched level of expertise in the various ECAs programmes, is constantly supporting its clients, demonstrating leadership in ECAs financing product development and bridging the funding gap to support the energy transition and sustainability all over the world. Yasser Henda, Global Head of Export Finance at BNP Paribas CIB noted, “In today’s changing environment, export finance has taken on refreshed importance, stepping in to support all areas of the economy right across the globe. We have seen a real shift in the industry that kicked off several years ago, gathered pace and took on new shapes during the pandemic.”
❝ In today’s changing environment, export finance has taken on refreshed importance, stepping in to support all areas of the economy right across the globe. We have seen a real shift in the industry that kicked off several years ago, gathered pace and took on new shapes during the pandemic. ❞
A historically important part of governments’ international trade strategies, ECAs were created to promote job creation and exports. While the majority of their financing was traditionally earmarked emerging markets (EMs), and made in partnership with DFIs, the global financial crisis (GFC) in 2008-10 saw governments mobilise export finance programmes to counter the decrease in private market trade financing. The result was a strong increase in financing of projects in developed markets (DMs). According to Yasser Henda, “The global financial crisis triggered a change in government spending (and lending) priorities, and which have impacted ECAs’ focus. Nearshoring and sustainability, two themes that came to the fore in export finance during the global health pandemic, have resulted in a reweighting of funds towards developed markets.”
❝ The global financial crisis triggered a change in government spending (and lending) priorities, and which have impacted ECAs’ focus. Nearshoring and sustainability, two themes that came to the fore in export finance during the global health pandemic, have resulted in a reweighting of funds towards developed markets. ❞
Delivering on the energy transition
In September 2021, the International Chamber of Commerce (ICC) published a whitepaper recommending several new measures. These include ECAs complying with sustainable lending practices in the future, supporting the buyer country’s economic and social progress without endangering its financial future. While greater alignment and modernisation of the arrangement is needed and new rules are expected to be formally announced mid-July, it is clear that export finance can play a key role in supporting sustainable solutions and innovative technologies that deliver on global commitments. As Yasser Henda explained, “Export finance will be a crucial component in driving the energy transition. No longer restricted to developing markets, we are increasingly seeing governments fund domestic projects to promote and safeguard their domestic champions.”
❝ Export finance will be a crucial component in driving the energy transition. No longer restricted to developing markets, we are increasingly seeing governments fund domestic projects to promote and safeguard their domestic champions. ❞
Europe in particular has taken the lead on sustainable transactions with more than half going to wind power generation. ECA-guaranteed loans supporting energy generation and supply have, as a consequence, grown by more than 50% as the sector adapted to changing priorities on strategic industries and sustainable development. Included in the EU’s “Projects of Common Interest” list of important infrastructure projects, Viking Link was selected for its contribution to the interconnection of the European electricity network and its contribution to Europe’s energy security. The 765 km electricity interconnector between Denmark and the UK transports renewable electricity equivalent to the electricity consumption of 1.4 million households. The project was financed through two ECA covered green loans for an aggregate amount of US$271 million under National Grid’s green framework. Alongside ECAs from Sweden, Germany and Italy, BNP Paribas acted as Sole Structuring Bank and Bookrunner.
Best bank for ESG (export finance) 2022
Extending public support as a catalyst to the private sector
Public providers – mainly export credit agencies – expect their risk appetite to widen during the course of 2023, as evidenced by Berne Union’s Q1 2023 Business Confidence Index, a measure of the overall perception of demand, risk appetite and claims by the leading global export finance association. As a result of their evolving mandates, ECAs can innovate in a variety of ways to bridge this gap and guarantee supply of financing to the private sector. This is particularly so for green projects and international investments but ECAs can also offer more traditional support like working capital and eligibility-based capital goods credit insurance. Introducing more flexibility in financing terms, tenors, costs, and eligible amounts. Broadening companies’ sources of financing also helps ECAs deliver on their own objectives of supporting companies transform their production models. According to Yasser Henda, “The Export Finance industry continues to evolve to adapt to the current context and here at BNP Paribas, we are constantly innovating to offer our clients comprehensive and optimal solutions to meet their needs.”
❝ The export finance industry continues to evolve to adapt to the current context and here at BNP Paribas, we are constantly innovating to offer our clients comprehensive and optimal solutions to meet their needs. ❞
In a first operation under its new Green Investment Policy, the Spanish export credit agency Cesce has provided its credit insurance policy to cover a €500 million syndicated green loan for the Spanish utility Iberdrola. The funds will finance renewable wind and photovoltaic projects, as well as battery and transmission grid projects worth up to 650 MWs of renewable capacity in the UK, Ireland, Portugal and Poland. The loan has a maximum term of 15 years and enables Iberdrola to strengthen its leadership in ESG financing of projects that are aligned with Iberdrola’s internal Sustainability Development Goals (SDGs) KPIs: SDG number 7 – Affordable and Clean Energy – and SDG number 13 – Climate Action. Committed to supporting the transition to a sustainable and inclusive economy, BNP Paribas acted as Mandated Lead Arranger, Bookrunner and Sustainability Coordinator for the innovative structure of the syndicated loan to Iberdrola.
To help corporates navigate their sustainability journeys, in 2021, BNP Paribas launched the Low-Carbon Transition Group (LCTG). This brings together over 250 experts across geographies and business lines and supports clients on targeted sustainability advisory and financing solutions across regions and business lines.
Securing domestic supply chains
Spurred by considerations of national security, competitiveness and resilience, governments around the world are keen to expand their influence over global value chains (GVCs). A recent OECD study on GVCs found that high geographical concentration of suppliers in industries such as automotive and information and communications technology (ICT) accentuated GVC vulnerabilities. In response to a series of supply chain disruptions, governments have announced initiatives to re-shore production and know-how. In Europe, the EU New Green Deal places a particular emphasis on the green and digital transitions, enhancing resilience and strengthening strategic value chains as part of this 2021-2027 initiative to fund activities of strategic importance to the EU.
In 2022, the Korean export agencies, K-Sure and KEXIM, the German export credit agency, Euler Hermes, and a consortium of private sector lenders, extended a US$2 billion green loan to the Korean industrial SK On to build a 30GWH electric vehicle (EV) battery plant in Hungary.
Leveraging public and private partnerships and cooperation, the new plant guarantees future business and trade flows by ensuring a constant supply of EV batteries to Volkswagen and Ford’s European manufacturing facilities. The transaction is the largest multi-ECA transaction the Korean sponsor has ever achieved and the first ECA-covered facility for SK Group with Euler-Hermes, confirming the strategic importance of the automotive industry to the German economy. BNP Paribas acted as ECA Coordinating Bank, MLA, Green Loan Coordinator and Lender. The financing won the GTR Best ECA-backed Deal in 2023.
The innovative financing structure extended to SK On, follows Northvolt’s US$1.6 billion debt financing to build Europe’s first renewable energy powered giga-factory to produce the world’s greenest batteries. BNP Paribas acted as Mandated Lead Arranger and Financial Advisor, and won The Banker Deal of the Year Award for Infrastructure and Project Finance in Europe in 2021 for this financing.
BNP Paribas CIB tops Dealogic league tables for the third year in a row thanks to the outstanding quality, performance and commitment of its #exportfinance franchise.
- Dealogic’s #1 MLA arranger of ECA-guaranteed loans for the 3rd consecutive year
- Top 2 in the same ranking for the 5th consecutive year
- Top 3 in the same ranking for the 7th consecutive year