As part of this year’s Budget, the government announced it would be increasing the lending capacity of UK Export Finance (“UKEF”) by a further £2 billion to allow it to provide funding to overseas projects which support clean growth, along with making permanent the additional £2 billion provided at Budget 2018. It will also expand upon the face-to-face support it offers to those exporters in Northern England and Scotland who are focussed on clean growth. Although it is not expressly set out which projects fall into this ‘clean growth’ category, it seems to cover those which are aligned with reducing carbon emissions and enhancing the environment, which were described in the Budget as ‘major government priorities’.
The UKEF department is the UK’s export credit agency; it offers loans, insurance policies and bank guarantees to overseas buyers of UK goods and services in order to facilitate international trade. Its purpose is to ensure that no viable UK export fails for lack of finance or insurance, while operating at no net cost to the taxpayer.
Historically, the UKEF has a rather poor track record in sustainability terms, since it is responsible for financing many fossil fuel projects, with only a small proportion of its support being offered to renewable projects. This is particularly so in low to middle income countries; in 2017-18 only 0.6% of the UKEF’s support went to renewable energy projects, whereas 99.4% went to fossil fuel projects. Further, the UKEF has been criticised following the 2020 Budget by international NGO Global Witness for continuing to provide multi-million-pound investments for overseas fossil fuel enterprises in breach of Organisation for Economic Co-operation and Development (“OECD”) guidelines, despite its recent financial pledge to support clean growth.
Nevertheless, the UKEF is increasingly showing its support for sustainable projects; just recently it agreed to support approximately £77.3 million in project finance for the design, construction and operation of a 600 megawatt windfarm located off the west coast of Taiwan. It is hoped that more enterprises such as this one will be helped using the £2 billion grant
We saw at the end of 2019 that sustainability-linked loans (“SLLs”) are becoming more prominent and there is clear appetite in the market for financing to become more environmentally friendly, but of course change does not happen overnight. Although this announcement is a piece of positive news in a very uncertain world, it seems the UKEF still has a long way to go to improve its contribution to clean growth around the globe.
Jonathan Porteous, Head of Banking and Finance at Stevens & Bolton comments that:
We are pleased to see this news which appears to mark a gear-shift by the UK in terms of recognising the importance of encouraging environmentally friendly development internationally. Meanwhile, sustainability-linked loans are becoming more and more common and are likely to be making their way into the domestic mid-market very soon.