UK Export Finance Contents

4Policy, measurement and transparency

UKEF’s environmental policies

121.UKEF’s Environmental, Social and Human Rights (ESHR) policies are guided by its 2009 Policy and Practice on Environmental, Social and Human Rights due diligence and monitoring. These principles set out that UKEF:

Will take account of factors beyond the purely financial and of relevant government policies in respect of ESHR impacts on individual transactions;

Will comply with all international agreements which apply to the operations of ECAs. These agreements include the OECD Council Recommendation on Common Approaches for Officially Supported Export Credits and Environmental and Social Due Diligence (OECD Common Approaches), which inform the way in which member ECAs should address ESHR due diligence for projects and existing operations they are asked to support and ESHR monitoring after support has been agreed;

Will comply with the requirements of the Equator Principles, which UKEF has adopted; and

Will not operate beyond international agreements which apply to ECAs or the Equator Principles.201

122.The Equator Principles are a risk management framework, adopted by financial institutions, for determining, assessing and managing environmental and social risk in development projects.

123.UKEF has a team which screens all potential projects that fall within the scope of the OECD Common Approaches and Equator Principles. For those identified as high or medium risk, an ESHR review is undertaken which “examines the … ESHR risks and potential impacts of each project it is asked to support, and monitors the ESHR performance in line with its published ESHR policy and the OECD Common Approaches.”202 Projects are then categorised as follows:

Category A: Potential significant adverse ESHR risks and/or impacts; or

Category B: Less adverse ESHR risks and/or impacts (than Category A); or

Category C: Minimal or no adverse ESHR risks and/or impacts.203

Box 2: The Equator Principles

The Equator Principles are a risk management framework, adopted by financial institutions, for determining, assessing and managing environmental and social risk in development projects. UKEF adopted these Principles on 31 March 2016. Out of its entire portfolio in 2017–18 UKEF reported two projects reaching financial closure under the Equator Principles (one Category A infrastructure project and one Category B infrastructure project). In 2016–17 it reported on two Category B infrastructure projects and one Category C “Other” project. Since adopting the Principles, UKEF has not reported on any oil and gas or power projects on the Equator Principles website.

Source: Equator Principles website: Equator Principles and Members & Reporting [date accessed 25/05/2019]

124.Category A projects are subject to an additional Environmental and Social Impact Assessment, to “address the issues in the international standards applied to the project.”204 This includes calculating the project’s forecasted GHG emissions. For example, the Dhi-Qar Combined Cycle Gas Turbine Power Plant Project in Iraq, involving GE, Enka UK and the Republic of Iraq Ministry of Electricity, the following environmental and social impacts were considered:

Figure 5: Factors considered in the ESIA report for the Dhi-Qar Combined Cycle Gas Turbine Power Plant project in Iraq, September 2018




Air quality

Hydrology and water quality

Soil quality



Geology and Seismicity

Biological conditions

Terrestrial flora

Terrestrial fauna

Aquatic flora and fauna

Protected and key biodiversity areas


Data collection techniques

Demography and population

Economy and livelihood




Housing conditions, infrastructure and services

Vulnerable groups

Project awareness

Cultural heritage

Source: From the Dhi-Qar project’s Environmental and Social Impact Assessment (ESIA) Report, September 2018

125.In addition, the Export Guarantees Advisory Council (EGAC) reviews at least one project classified as A (“potential significant adverse ESHR risks and/or impacts”) and several classified as category B (“less adverse ESHR risks and/or impacts (than Category A)”) per year.205 The EGAC told the Committee that it “primarily concerns itself with providing advice on the ethical policies applied by UKEF in the conduct of its business related to bribery and corruption, the environmental, social and human rights risks and impacts of the projects which it supports, sustainable lending and transparency (including freedom of information requests).206

126.However, Andrew Wiseman, Chair of the Export Guarantees Advisory Council, told the Committee that the EGAC only look at projects after they have been approved, in accordance with its role as an advisory committee:

We do not look at current projects, we do not have an executive role in deciding whether UKEF should support a particular project.207

Nonetheless, he emphasised that the EGAC could do more to ensure that the data that UKEF is required to report on the impacts of its projects is integrated in to a climate change risk assessment:

It is one of the things that I think would be good for the Advisory Council to look at going forward, as to what UKEF does with the information it gets and the degree to which that is part of its risk assessment procedure.208

127.UKEF emphasised that in pursuing its mission to “ensure that no viable UK export fails for lack of finance or insurance, while operating at no net cost to the taxpayer”, UKEF is necessarily demand driven,” and is not “legally able to discriminate between classes or types of exports.”209 Louis Taylor, UKEF’s CEO, emphasised that, while UKEF must take account of government policy “in the round”, “within the statutory purposes of UKEF there is not a developmental or environmental statement in there at all.”210 Louis Taylor explained that, while, in time “there will be progress on environmental standards,”

We equally have a policy that we do not go beyond the agreements that the UK signed up to that impact export credit agencies in order not to make uncompetitive UK exporters.211

128.Notably, however, UKEF has previously gone beyond this remit in the case of coal. In 2014, the UK government was the first to announce that it would end support for public financing of new coal-fired power plants overseas, except in rare circumstances, and the UK co-founded the Powering Past Coal Alliance with Canada in 2017.212 UKEF has not supported a coal project since 2002.

Criticisms of UKEF’s environmental policies

129.UKEF’s statutory remit was criticised by several of our witnesses. Navraj Ghaleigh told the Committee that “the mandate of UK Export Finance is basically a standard growth model–the traditional 1980s or 1990s growth model. It has no environmental considerations within it.”213 To solve this issue, he suggested a “new policy, which must be considered in the process of the variety of export finance products.”214 This would involve:

[Generating] a climate change policy that requires UK Export Finance to measure and monitor the CO₂ intensity of its lending portfolio; assess the risk of its climate-related investments; implement recommendations of the financial stability task force, which go back to what you were saying about stranded assets; and integrate climate change-related considerations into its lending practices.215

130.Others said that UKEF’s policy of complying with the minimum required environmental policy was not compatible with the UK government’s claims of climate leadership. Both ENDS said that “the scale of UKEF support for fossil fuel-related transactions does not match British leadership in international efforts to combat climate change.”216 CAFOD have described UKEF as the “elephant in the room” undermining UK climate and development leadership.217

Measurement and transparency

131.Neil McCulloch, Associate Fellow of the Institute of Development Studies and Executive Director of the Policy Practice, told the Committee:

UKEF does have an environmental, social and human rights advisory group. It does look at the environmental, social and human rights aspects of the activities it finances, and yet, rather strangely, it does not measure the climate impact. Given that climate change is probably the biggest environmental threat that the world faces, that seems an odd omission.

It is extremely important that UKEF adopts a climate change policy in which it will make a serious attempt to try to measure what the emissions impact associated with the activities it supports would be.218

132.Classification, measurement and reporting of GHG emissions is an evolving topic. The GHG Protocol that underpins GHG accounting principles is becoming more important. In 2016, at least 92% of Fortune 500 companies responding to Carbon Disclosure Project (CDP) used the GHG Protocol directly or indirectly through a programme based on GHG Protocol, and it is “the only internationally accepted method” for a company to account for the full range of its emissions.219 Its Corporate Standard classifies a company’s direct and indirect GHG emissions into three “scopes” shown underneath and summarised in the accompanying graphic:

a)Scope 1: “Direct emissions from own or controlled sources”;

b)Scope 2: Indirect emissions from the generation of purchased electricity, steam, heating and cooling consumed by the reporting company; and

c)Scope 3 “All other indirect emissions that occur in a company’s value chain.”220

Figure 6: Overview of GHG Protocol scopes and emissions across the value chain

Source: Greenhouse Gas Protocol, Corporate Value Chain (Scope 3) Accounting and Reporting Standard

133.The use of modelling rather than measurement–albeit still guided by consistent and robust guidelines–increases as one moves through Scopes 1, 2 and 3 emissions. The resulting GHG calculations can be reported in absolute numbers, usually tonnes of CO₂ equivalent, or intensity terms based on the underlying activity.221 Examples of intensity measures include kilogrammes of CO₂ equivalent per megajoule of energy, miles travelled, or tonnes of paper, cement or chemicals produced. Scope 1, 2 and 3 emissions are cumulative and, in total, cover the full life-cycle emissions, or “carbon footprint” of the product, asset or portfolio in question.222 Regulators, investors and pressure groups are increasing demands for broader (i.e. towards life-cycle) and more transparent disclosure on organisations’ GHG emissions.

134.There is a contrast in the relative life-cycle distribution of Scopes 1, 2 and 3 emissions across industrial activities. Two examples are shown in the graphic underneath. Generally, Scope 1 emissions are those within the control of the reporting organisation. Scope 3 emissions rely more on the activities, especially the energy choices, of their supply chain. Regulations based on life-cycle emissions, such as in road transport fuels, implies an organisation will leverage its control over the emissions-related performance of its suppliers–and maybe even customers.223

Figure 7: Comparing Scope 1, 2 and 3 emissions for an integrated oil and gas company and a high street retail company

Source: Company reports for Shell and Marks and Spencer, 2017/18

135.Ultimately, the detail of Scopes 1, 2 or 3 is irrelevant at the level of global emissions; all GHGs released into the atmosphere have the same climate impact. Granulated scope-based reporting is, however, critical to regulators, investors and observers seeking to understand and/or influence an organisation’s climate-related exposure or mitigation efforts.

136.The G20 Task force on Climate-related Financial Disclosures (TCFD) recommendations for voluntary climate-risk reporting has encouraged many organisations to monitor and report disaggregated emissions.224 Similarly, the CDP (Carbon Disclosure Project) is a not-for-profit organisation that surveys and reports on industrial companies’ environmental impacts.225 That includes ranking climate-related actions and extends to cover Scope 3 emissions.

137.Especially for activities for which Scope 3 emissions account for a significant proportion of their carbon footprint, external interest in transparency around organisations’ Scope 3 reporting has increased. As figure 7 shows, this is especially applicable to fossil fuel industries. The GHG Protocol is the key methodological source for the calculation and reporting of Scope 3 emissions for all activities.

Calculation and estimation

138.Given its reliance on algorithm-based calculations rather than formal measurement, it is vital to have Scope 3 emissions estimates guided by a consistent and robust methodologies. Louis Taylor told the Committee that UKEF currently do not report on Scope 3 emissions for two reasons:

First, there is no requirement on us to do that at the moment but, secondly, and I am not an environmental expert, the measurement of the Scope 3 emissions is not such that they have universal acceptance as a measure.226

139.While UKEF does not believe that there is one universally accepted measure for Scope 3 emissions, the Greenhouse Gas (GHG) Protocol provides the world’s most widely used GHG accounting standards for companies, including Scope 3.227 The Protocol’s Scope 3 (Corporate Value Chain) standard is summarised as:

A methodology that can be used to account for and report emissions from companies of all sectors, globally. It is accompanied by a suite of user-friendly guidance and tools developed by the GHG Protocol to make Scope 3 accounting more easy and accessible’ …. [it] is the only internationally accepted method for companies to account for these types of value chain emissions. Users of the standard can now account for emissions from 15 categories of scope 3 activities, both upstream and downstream of their operations.228

140.The standard was established in 2011 as “the only internationally accepted method” for a company to account for the full range of the emissions for which it is responsible.229 This includes those that take place outside the company’s own walls, “from the goods it purchases to the disposal of the product it sells.”230 Detailed technical guidelines, templates and online tutorials are provided to ensure correct and consistent application of the Scope 3 standard. The organisations that subscribe to CDP submissions have followed this reporting convention since its launch. Scope 3 related TCFD recommendations and CDP requirements refer organisations the GHG Protocol standard.

Prevalence of reporting

141.Not all organisations currently report on Scope 3 emissions, although there are no official statistics to quantify levels of reporting. Organisations that do report Scope 3 emissions are almost exclusively from the private sector, and tend to be amongst the largest (typically FTSE100 listed) and under most scrutiny on their climate and environmental performance. Growing support for TCFD as well as the climate-related focus of institutional shareholders suggests the reporting of Scope 3 emissions is expanding as external scrutiny intensifies and codifies. One example of this is the series of recent shareholder resolutions demanding the largest oil and gas companies both quantify their Scope 3 emissions and cap them with a target (for example, BP, ExxonMobil, Chevron, Equinor and Shell faced such resolutions in January 2019).231

142.CDP undertakes extensive surveying of companies to produce its annual ranking and rating of organisation on behalf of its 525 global institutional investors.232 Its rating tables demand Scope 3 emissions data. The growing influence and use of its results have therefore increased the prevalence of Scope 3 reporting.

143.The TCFD mission is to “develop voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to investors, lenders, insurers, and other stakeholders.”233 The finance sector is the prime user focus of the TCFD. As of February 2019, almost a third of the 580 TCFD supporters are from the banking and asset management sectors.234 Those companies’ need to quantify portfolio Scope 3 emissions is based on aggregating data from their diverse shareholdings. Indirectly, again, that increases the extent of scrutiny of listed companies’ Scope 3 emissions.

144.Fossil fuel companies are amongst the most progressive and transparent, in terms of reporting Scope 3 emissions. That reflects its disproportionate contribution to their overall carbon footprint, growing pressure group interest, increasing demands of ratings agencies (for example, CDP ratings) on this issue and related fund manager data requirements.

145.In January 2019, Export Development Canada (the Canadian ECA), became the first ECA to formally support the TCFD, publicly declaring an aspiration to “work towards implementing” its recommendations.235 By inference, that should include reporting its portfolio-level Scope 3 emissions, and is an example of an ECA stepping beyond the requirements of the OECD Common Approaches or Equator Principles that guide ECA’s environmental practices.

146.UKEF generally does not act beyond the minimum policy requirements to which it considers itself subject. It is unlikely to change to take more environmental factors into account unless there is a change in the policy or legal frameworks governing its mandate. Government should legislate to ensure compliance with the UK’s obligations under the Paris climate agreement and other national and international climate and environmental commitments, including the SDGs.

147.UKEF already calculates projected emissions for projects that it supports, which it publishes in individual Environmental and Social Impact Assessment documents. However, it does not report on its emissions at a portfolio level, or on each project in a single location. For full transparency, UKEF should report on the forecast and actual emissions of all projects it supports, as well as the portfolio totals, in a single document, so that it is easy to access and compare projects. UKEF should also report the total emissions of its portfolio annually in its Annual Report and Accounts. This should not be challenging, as UKEF already collects this data.

148.Scope 3 emissions are essential for calculating the full emissions impact of a product, asset or portfolio. Scope 3 emissions are particularly high for fossil fuel-related projects. UKEF claim that there is no universally accepted measure for Scope 3 emissions. However, Scope 3 emissions are already being used in many private sector companies using the GHG Protocol, and the Canadian Export Credit Agency has already expressed its ambition to work towards the G20 Taskforce on Climate-related Financial Disclosure (TCFD) standards (which would include Scope 3 emissions).

149.UKEF should report the Scope 3 emissions of all projects, and in particular of all fossil fuel-related projects where Scope 3 emissions are particularly high. The GHG Protocol provides a methodology for calculating Scope 3 emissions, and the TCFD recommendations provide a readily-available source of guidance for this work. If Government considers that existing methodologies for modelling Scope 3 emissions are inadequate, it should support research to develop an agreed model, and should promote this model amongst its ECA peers.

150.UKEF should commit to follow recommendations by the Task Force on Climate-related Financial Disclosures (TFCD), including to quantify and report its exposure to stranded assets due to climate change and actions to support energy transition.

151.UKEF claims that its activities are supporting transition to lower-carbon energy generation by reducing global GHG flow in comparison to other energy options. UKEF would be able to demonstrate that it is supporting a transition to net zero if it reported fully on the GHG emissions profile of its energy projects, as indicated above, alongside the difference between emissions for alternative energy generation methods. This would allow UKEF to show when fossil fuel substitution had led to a less carbon-intensive option and compare the substituted choice to any feasible renewable energy alternatives, whilst still acknowledging the project’s overall contribution to climate change based on GHG stock.

152.UKEF should report on the GHG emissions profile of each of its energy projects, including its net emissions and the difference between modelled emissions for alternative energy generation methods. The alternative energy generation methods should include the incumbent generation method (when the UKEF-supported project is substituting a more emissions-intensive energy production method) as well as any feasible renewable energy alternatives. UKEF should also calculate and report the net difference that it makes to emissions in export countries across its portfolio.

153.The remit of the Export Guarantees Advisory Council (EGAC) should be expanded to include assessing how UKEF’s activities contribute to the UK’s climate commitments and greenhouse gas net zero targets. The EGAC should report regularly on this progress to the Secretary of State for International Trade.

202 UK Export Finance (EXF0009)

203 UKEF, Policy and practice.

205 UKEF, Policy and Practice; Export Guarantees Advisory Council (EXF0023)

206 Export Guarantees Advisory Council (EXF0023)

207 Andrew Wiseman, Q118

208 Andrew Wiseman, Q154

209 UK Export Finance (EXF0009)

210 Louis Taylor, Q254

211 Ibid., Q264

212, Climate Change Minister Claire Perry launches Powering Past Coal Alliance at COP23, (November 2017), [accessed 14/05/2019]; Powering Past Coal, Members: United Kingdom, [date accessed 14/05/2017]

213 Navraj Ghaleigh, Q21

214 Ibid., Q22

215 Ibid., Q21

216 Both ENDS (EXF0005)

217 Catholic Agency for Overseas Development (CAFOD) (EXF0002)

218 Neil McCulloch, Q72

219 Greenhouse Gas Protocol, Corporate Value Chain (Scope 3) Standard web page, [accessed 12/03/2019]; Greenhouse Gas Protocol, Corporate Value Chain (Scope 3) Standard web page, [accessed 12/03/2019]

221 Protocols exist to convert the Global Warming Potential (GWP) of all GHGs, from methane to soot, into their CO² equivalents using multiples of impact.

222 Although frequently misused, the term should cover all of an activities’ GHG emissions

223 California’s Low Carbon Fuel Standard is an exemplar of this approach, setting a maximum threshold for full life-cycle (from exploration to combustion) fuel emissions based on grams of CO² per mile travelled

224 Support for TCFD standards grew from 101 to 580 companies from June 2017 to February 2019, reported in the last TCFD review.

225 Fuller details are available at the organisation’s webpage.

226 Louis Taylor, Q263

227 Greenhouse Gas Protocol, Companies and Organizations, [date accessed 15/05/2019]

228 GHG Protocol, Corporate Value Chain (Scope 3) Standard, [date accessed 13/05/2019]

229 Greenhouse Gas Protocol, Corporate Value Chain (Scope 3) Standard web page, [accessed 12/03/2019]

230 Ibid.

231 EnergyPost.EU, Five similar Climate Resolutions for BP, ExxonMobil, Chevron, Equinor, and Shell, (January 2019), [date accessed 10/05/2019]

232 CPD, Climate Change, [date accessed 13/05/2019]

233 Task Force on Climate-Related Financial Disclosures (TCFD), About the Task Force, [date accessed 13/05/2019]

234 Ibid.

235 EDC, Export Development Canada releases new Climate Change Policy, (January 2019), [date accessed: 13/05/2019]

Published: 10 June 2019