Summary
UK Export Finance (UKEF) is the UK’s export credit agency (ECA). It helps UK companies access export finance, which are loans, insurance policies or bank guarantees that enable international trade to take place. Its mission is “to ensure that no viable UK export fails for lack of finance or insurance, while operating at no net cost to the taxpayer.”
UKEF’s support for fossil fuel energy projects is unacceptably high, particularly in low- and middle-income countries. UKEF gave £2.6 billion to support the energy sector between 2013/14 and 2017/18. Of this, 96% (£2.5 billion) went to fossil fuel projects, with the £2.4 billion going to fossil fuel projects in low- and middle-income countries.
While there has been an increase in the proportion of support given to renewables projects in high-income countries in recent years, this is not reflected in support to low- and middle-income countries. In 2017/18, 96% of UKEF’s energy support to high income countries went to renewables and 4% to fossil fuel projects. By contrast, just 0.6% of UKEF’s energy support to low- and middle-income countries in 2017/18 went to renewables, and 99.4% went to fossil fuel projects. This level of support for fossil fuel energy projects does not respect the Paris Agreement, which commits signatories to “[Make] finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development.”1
Witnesses told the Committee that UKEF was risking stranded assets and “locking in” reliance on fossil fuel energy production for decades to come in areas where energy demand is set to increase. At a time when the UK Parliament has declared a “climate change emergency,” the Catholic Agency for Overseas Development have described UKEF’s activities as the “’elephant in the room’ undermining UK climate and development leadership.“ Former UN Secretary General, Ban Ki-moon urged that UKEF’s policy needs “recalibration” to meet international climate trends and obligations and wrote that “the best way for any country to avoid climate complacency is to develop robust, holistic and people-centred policies across government, so short-term trade or financial priorities do not trump the wider imperative of cutting global emissions.”
Although UKEF’s support to UK businesses in the energy sector is demand-led and makes up just 0.02% of global oil and gas investment, UKEF’s support “de-risks investments” and “sends a clear signal” to the wider investment market, attracting further finance to the projects which it chooses to support. Changes to UKEF’s climate-related practices could have significant symbolic and real-world value as evidence of the UK’s leadership on tackling climate change. UKEF have already shown some willingness to address climate concerns by phasing out coal support (through the Powering Past Coal Alliance), following consultation, after the 2015 Paris Agreement.
Other export credit agencies have already gone further than UKEF. The Swedish Export Credit Corporation (SEK) caps its fossil fuel operations at 5% of total lending, and in 2018 fossil fuels made up less than 1% of its total lending. Canada’s Export Development Canada (EDC) introduced a Climate Change Policy in January 2019, committing the EDC to measure, monitor and disclose climate-related risks and opportunities, integrating climate change considerations into business decisions and encouraging partners to do the same.
This Committee is calling for UKEF’s mandate to be changed by the end of the year to ensure that UKEF’s support is aligned with the UK’s climate leadership and climate commitments, and to ensure that it is supporting a transition to net zero emissions by 2050.This would ensure that UKEF’s activities are contributing a just and sustainable energy transition in line with the IPCC and CCC’s strong advice to keep temperature below 1.5°C of global heating. It calls on Government to introduce a strategy to end support to new fossil fuel energy projects by 2021.
It also recommends that UKEF should leverage its position among other OECD ECAs to ensure multilateral action towards net zero emissions, report on the forecast and actual emissions of its entire portfolio, including scope 3 emissions, to ensure maximum transparency, and commit to follow recommendations by the Task Force on Climate-related Financial Disclosures to quantify and report its exposure to stranded assets due to climate change and actions to support energy transition.
1 United Nations, Paris Agreement, (2015), Article 2.1.a
Published: 10 June 2019