Select Committee on Environmental Audit Eleventh Report

3  The Case Impact Analysis Process

18. The ECGD carries out an environmental and social impact assessment for all civil non-aerospace applications, including defence exports not requiring an export licence. In 2007-08, 13 of the 96 cases supported by the ECGD required an assessment of this kind.[34] The Case Impact Analysis Process (CIAP) is set out in detail in the memorandum from the NAO, which describes CIAP as 'a good framework'[35] and notes:

    Since 2000, ECGD has done much to incorporate policies and processes which seek to ensure that sustainability considerations are taken into account in deciding whether or not to approve applications for support. These meet or exceed all the requirements and expectations set out in international rules on the operation of export credit agencies.[36]

19. The assessment process is carried out by the Business Principles Unit (BPU), on the basis of information provided by the exporter through impact questionnaires. The BPU reports any concerns to the ECGD's Risk Committee, which then decides whether it would be appropriate to support the application. The NAO stressed that the effectiveness of the CIAP depends upon the experience and resources of the BPU.[37] The NAO was satisfied that the BPU's assessment of the information provided to them by exporters was comprehensive, but raised concerns about the timescales involved, stating:

    The timescales involved in obtaining all the necessary information on the impacts of major projects are lengthy. This may result in ECGD only being in a position to consider whether financial support would be consistent with its Business Principles at a relatively late stage of the underwriting process.[38]

20. Careful and thorough assessments of this kind will inevitably take time, especially when the process relies upon exporters providing substantial amounts of information on request. It is critically important that the overall application process builds in enough time to accommodate this assessment and that, in the meantime, the underwriting process does not gather such momentum so as to render the BPU's assessment incidental to the matters under consideration. Although Mr Wicks assured us that any application that failed to pass the BPU's assessment would not receive support,[39] it is important to ensure that the timing of assessment and underwriting processes does not leave the BPU at a disadvantage. WWF alleged an application connected with the controversial Sakhalin development (which was later withdrawn) was given 'legally binding' conditional approval before full environmental assessments had been carried out, and that this then complicated the ECGD's involvement in the project.[40] No offer of support should be made, whether actual or provisional, until the ECGD's Business Principles Unit has completed its assessment, and its recommendations have been duly considered. The Government must be prepared to provide the ECGD with whatever further resources are necessary for the Business Principles Unit to carry out its sustainable development assessment work swiftly, effectively, and consistently.


21. The ECGD requires compliance with international standards published by the World Bank, and with the standards of the project's host country where these are more stringent. Its policy is to employ 'the highest standards that are available'.[41] The JNCC supported this approach: 'the consistency with international standards, in particular those employed by the World Bank, ensures best practice and an analytical process that is comparable to that employed by other export credit agencies'.[42] This means, however, that the ECGD follows standards that can vary from case to case depending on the project and the host country, something that can lead to confusion and criticism. The ECGD should disclose the precise standard used as the basis for environmental and sustainable development review in every high-impact case. This information should be published prominently alongside the project assessment information.

22. There is obvious value in using universal, international standards. However, there has been some criticism that these standards do not go far enough in reflecting the sustainable development aims set out in the ECGD's Business Principles. In particular, the Corner House argued that the standards used by the ECGD should incorporate the UK's Sustainable Development objectives,[43] and that by not doing so the assessment process failed to address a number of environmental and social impacts.[44] Including the UK's Sustainable Development objectives in the assessment procedure would introduce some difficulties: the 'guiding principles' in their current form would not be easily applicable; conflict and crossover with existing standards would need to be resolved; and, most significantly, the introduction of standards based on these objectives would raise the ECGD's standards above the international standards of other ECAs. The impacts of any increase in standards on the competitiveness of UK exporters would need to be carefully considered. However, the ECGD has a responsibility to set an example on the world stage and to use its status to encourage similar advances from other ECAs; a gradual raising and tightening of standards would be an obvious way to achieve this. It has also been noted that the swiftest and most effective way to raise the international bar through the OECD is for one ECA to set a higher standard for other ECAs to follow.[45]

23. We recommend that the ECGD commissions an independent study into how its environmental and sustainable development standards could be tightened, including an assessment of how UK Sustainable Development objectives could be effectively reflected in the ECGD's assessment standards. Such a study should be used to help the ECGD raise international standards. The ECGD should devise and publish a strategy, so that it can be properly scrutinised, and so that UK exporters and other Export Credit Agencies are aware of the ECGD's intentions. Where a standard can be raised without undue impact on the competitiveness of UK industry, the higher standard should be adopted and concomitant action from other Export Credit Agencies should be encouraged.

Constructive Engagement

24. Where an application fails to meet the ECGD's standards, it may choose to enter into the 'constructive engagement' process in an effort to bring the project up to standard. This occurs during the application process, prior to the ECGD's final decision on whether or not to support the application. The NAO is confident that this process has value, detailing its achievements in a number of cases, including the controversial (and eventually withdrawn) Sakhalin application.[46] WWF, however, argued that constructive engagement on the Sakhalin application was inadequate, operated without due transparency and failed to produce the necessary improvements.[47] It noted:

    Whilst constructive engagement may be used to improve a project prior to design and construction, beyond this there are limited changes that can be made. […] Engagement is only effective if it takes place early enough to set out the clear standards that are required of all projects to be supported by ECGD.[48]

25. Constructive engagement raises particular concerns regarding the ECGD's powers of discretion. By seeming provisionally to accept a project that has failed to meet international standards, constructive engagement can contribute to the perception that the agency has wholly flexible standards. The Corner House expressed concern that the constructive engagement process is bound by 'no real rules',[49] while WWF deplored the ECGD's admission that it retained its right to exercise discretion and support a project even where there was a breach of international standards.[50] This discretion, especially when shrouded in secrecy, it was argued, sometimes serves to undermine the ECGD's sustainable development credentials:

    ECGD has reserved wide powers to derogate from its stated sustainable development and procedural standards, thus seriously weakening their effectiveness. Categorical policy statements (for example, that all projects should comply with World Bank safeguard policies) are hedged by other statements that allow ECGD to exercise wide discretion in their application […] The ECGD does not normally disclose decisions to derogate or the nature of the derogations applied.[51]

26. Constructive engagement and the ability to exercise discretion are important and, when used appropriately, can help to improve project standards in general. But the failure effectively to communicate these decisions and the reasoning behind them leaves the ECGD open to criticism and suspicion. The disclosure of the reasoning behind these decisions, and the effects of the constructive engagement process, must be improved if the system is to inspire confidence.

27. The ECGD recently announced that it would be increasing the reporting of the carbon emissions related to its projects.[52] This is an important first step towards measuring and improving the carbon footprint of ECGD-supported projects, and will set a clear standard for other ECAs to follow. Mr Wicks told us that, under World Bank standards, the ECGD is already obliged to require sponsors to seek to reduce greenhouse gas emissions.[53] This is positive, and the data provided by this increasing reporting of carbon emissions will provide an opportunity to strengthen this process and open it up to wider scrutiny.

28. We welcome the recent decision of the ECGD to report the carbon dioxide impacts of high and medium impact projects.[54] The information gathered under this exercise must be put to practical use by helping further to improve the standards of individual projects. This is an area where the ECGD should be leading from the front and setting an example for other Export Credit Agencies. The ECGD should also use the data to review the carbon footprint of its portfolio as a whole and to identify areas where further emissions reductions could be achieved without limiting the scope of its business.

Exports not subject to the CIAP process

Aerospace cases

29. Civil aerospace exports are excluded from the CIAP on the grounds that the environmental impacts of the exports are already assessed as part of the regulatory requirements for the certification of new aircraft: the European Aviation Safety Agency (EASA) Standards, incorporating ICAO standards for aircraft emissions and noise. The Government argues that no 'useful purpose would be served' by also subjecting these exports to the ECGD's own procedures.[55] The ECGD argues that it is impossible fully to assess the impact of aircraft in the same way as CIAP projects, since there is no way of knowing exactly how the aircraft will be used: as such, international standards on noise and emission levels are the only meaningful assessments that can be carried out.[56] The NAO found that: 'ECGD does not attempt to assess the environmental impacts relating to the use of aircraft after they have been exported nor does it possess the necessary information upon which to base such an assessment'.[57]

30. The report of our predecessor Committee recommended that the ECGD bring all aerospace-related applications within its impact screening process, for the same reasons reiterated by WWF in the course of this inquiry:

    Adherence to only the International Civil Aviation Organisation standards reveals nothing of the social, developmental or human rights consequences that such exports may have in the buyer country nor about the effect they may have on the local or regional economy—issues that would be covered by ECGD's existing case impact screening.[58]

31. It is difficult to assess exactly how aircraft will be used. However, by excluding aerospace from the Case Impact Assessment Process too many important sustainable development impacts are left unconsidered. We reiterate the conclusion of our predecessor Committee that the ECGD should bring all aerospace-related applications within the Case Impact Assessment Process, in addition to ICAO assessment. Full assessment may be difficult, and may even be impossible on occasion, but it is crucial to assess civil aerospace under these criteria to demonstrate that these issues have at least been considered. In such cases the assessment process should be accompanied by a narrative explaining any difficulties in applying the process, and setting out how conclusions have been reached.

Defence exports that require an export licence

32. The ECGD does not assess the environmental and social impacts of defence exports that require an export licence granted by BERR's Export Control Organisation (ECO), on the grounds that the ECO process itself undertakes some assessment of sustainable development concerns. The NAO described the scope of this assessment:

The Report of our predecessor Committee recommended that the DTI ensure the ECO process was as rigorous as the ECGD's screening for civil projects.[60] In response, the Government insisted that the ECO process was indeed 'rigorous and takes proper account of human rights and sustainable development'.[61]

34   Ev 81 Back

35   Ev 88 Back

36   Ev 81 Back

37   Ev 88 Back

38   Ev 86 Back

39   Q 80 Back

40   Ev 11-13 Back

41   Ev 90 Back

42   Ev 70 Back

43   The Government's sustainable development strategy was set out in the 2005 publication 'Securing the Future' and is based upon five guiding principles (living within environmental limits; ensuring a strong, healthy and just society; achieving a sustainable economy; promoting good governance; and using sound science responsibly). The strategy also set out four priorities for action: sustainable consumption and production; climate change and energy; natural resource protection and environmental enhancement; and sustainable communities.  Back

44   Ev 16 Back

45   Ev 10 Back

46   Ev 90 Back

47   Ev 11-13  Back

48   Ev 8 Back

49   Q 12 Back

50   Q 19 (Mr Leaton) Back

51   Ev 17 Back

52   Q 39 Back

53   Q 66 Back

54   Q 39 Back

55   Environmental Audit Committee, Seventh Special Report of Session 2002-03, Government Response to the Committee's Seventh Report 2002-03 on ECGD and Sustainable Development, HC 1238, page 2. Back

56   Q 49 Back

57   Ev 89 Back

58   Ev 6 Back

59   Ev 89 Back

60   Environmental Audit Committee, Seventh Report of Session 2002-03, Export Credits Guarantee Department and Sustainable Development, HC 689, para 22. Back

61   Environmental Audit Committee, Seventh Special Report of Session 2002-03, Government Response to the Committee's Seventh Report 2002-03 on ECGD and Sustainable Development, HC 1238, page 2. Back

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