UKEF: Facing the climate challenge with sustainable finance
Chloe Evans, Project Finance Credit Risk Manager and Helen Meekings, Head of Policy and Climate Change at UK Export Finance (UKEF) outline the part the UK’s ECA is playing in the runup to COP26 and its role in meeting the country’s net zero commitments
Climate change is a global challenge. It is at the forefront of considerations internationally as economies emerge from COVID-19 and ahead of the UK’s hosting of the UN Climate Change Conference (COP26) in November 2021. In response to this challenge and to the 2015 Paris Agreement which resulted from COP21, over 40 governments have now made time-bound net zero greenhouse gas emission commitments, in legislation or policy. The UK was the first major economy to do this, passing into law a domestic requirement for net zero greenhouse gas emissions by 2050.
Business and the finance sector have a vital role to play in meeting net zero commitments. It will require a transformation of the financial system. Businesses are essential in boosting innovation and transitioning away from high carbon sectors to clean growth alternatives, providing adaptation and resilience solutions, as well as in understanding their own climate-related risks and impacts.
UK Export Finance (UKEF) supports UK exporters and suppliers with access to trade and export finance and insurance. As the UK’s export credit agency, it has an important role to play in supporting UK business and exports as the UK and global economies transition.
UKEF has increased its support to the clean growth, climate adaptation and resilience sectors, supporting global mitigation and adaptation efforts. Last year, it launched a £2 billion direct lending facility for clean growth and renewable energy projects. Eligibility for this is based upon the core indicators of the ICMA Green Bond Principles.
UKEF has also launched a Transition Export Development Guarantee this year, which is an adaptation of UKEF’s successful Export Development Guarantee (EDG) which helps UK exporters access high value loan facilities for general working capital or capital expenditure purposes. UKEF’s Transition EDG has been developed to enable UK exporting companies transition their existing fossil fuels energy business to clean energy alternatives.
The Transition EDG was developed as part of the UK government’s policy ceasing support to the fossil fuel energy sector overseas. It means whether renewable energy is already a core part of a business’ strategy, or a business is transitioning from work in the oil and gas sector, the opportunities are there and UKEF can help.
Climate change has important implications for how UKEF takes account of risks and opportunities. In July 2019, UKEF committed to making financial disclosures in line with the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD), and UKEF published its first TCFD report in June this year as part of its Annual Report and Accounts for 2020-21 (available here). Work on TCFD is on-going including throughout 2020-21 as UKEF further integrates climate change considerations proportionately across all its products. UKEF also aims to publish its Climate Change Strategy in September this year.
UKEF continues to work with its ECA peers in seeking further consideration of the opportunities and risks associated with climate change, and particularly in respect of updating OECD understandings on renewable energy and coal-fired power.
Case study: FoundOcean
One business taking advantage of this shift is FoundOcean, a specialist construction company based in Livingston, Scotland. The company recently won a contract to provide the foundations for a 100-turbine offshore wind farm in Taiwan after receiving financial support from UKEF, creating 30 new jobs at the firm.
FoundOcean provides the foundation grouting to enable wind turbines to be secured to the seabed to form offshore wind farms, and the deal means the wind farm will be able to produce over 1GW of power – equivalent to 20% of the level the UK produces.
The company now has clients spanning the globe in South East Asia, Gulf of Mexico and in the Netherlands, as it anticipates that over half of its contracts will be abroad this year. In fact, 80% of FoundOcean’s businesses now come from renewable energy projects, after the firm restructured away from oil and gas. It is just one example of the potential for business growth – and jobs – that can be achieved by taking advantage of green export opportunities.