EXF0005

Written evidence submitted by Both ENDS

1.              As a civil society organization working from the Netherlands on diminishing negative social, environmental, climate and human rights impacts of Export Credit Agency (ECA) supported business transactions, Both ENDS welcomes the opportunity to provide a submission for the inquiry your committee is conducting on the scale and impact of UK Export Finance (UKEF) financing of fossil fuels in low and middle-income countries. In particular we would like to contribute from the concern that many government supported ECAs – including the Dutch ECA Atradius Dutch State Business (ADSB) – persist in supporting business transactions in the fossil fuel driven energy sector. We consider such ECA support completely contradicting the international climate agreements that most governments have pledged to support, in particular the Paris Agreement on Climate Action.

2.              In June 2017 Both ENDS published a report on the size of support that the Dutch ADSB is extending to the fossil fuel sector[1]. Our analysis showed that of all ADSB supported transactions during the 2012-2015 period about two third of the total volume benefited the fossil fuel production chain, with a total maximum insured amount of € 7.3 billion. International research suggests that collectively all ECAs of industrialised countries make available the - by far - largest share of public financial support for the fossil fuel sector[2]. Annually these ECAs are enabling finance for around € 30 billion in support of oil and gas projects, while multilateral development banks add another € 8 billion in public finance for fossil fuels[3]. Whereas the World Bank[4] announced in 2017 that after 2019 it will no longer finance upstream oil and gas, sadly no public ECA so far followed suit. Also many institutional investors and insurance companies are yielding to the need to divest from the fossil fuel production chain[5]. In this context ECAs such as UKEF and ADSB appear to be a principal impediment to the economic feasibility of an energy transition that effective climate policies are calling for.

3.              It is a common problem that only very limited information on ECAs’ contributions to fossil fuel-related transactions tends to be publicly available. Some specific official statistics compiled by the OECD, only covering the period from 2003 to 2013, provide an indication of likely trends of ECA figures for the larger fossil fuel sector. They indicate that OECD-based ECAs supported electric power projects over the indicated period for more than € 52 billion (USD 60 billion) under the terms of the Arrangement on Export Credits.[6] These statistics illustrate that 62% of these electric power projects reported on by the OECD are fossil fuel-fired. Such limited official figures, in combination with aggregated information in CSO reports referred to above, suggest an enormous level of support provided by ECAs for fossil fuel-related transactions.

4.              A lack of information disclosure on the amounts of export credit support for fossil fuel related transactions is also a problem with the UK Export Finance. While it is good that UKEF is publishing an overview of all the business transactions that it supports[7], it does not specify which transactions are related to the fossil fuel sector, and in what way these contribute to new greenhouse gas emissions. Also the UK Export Finance Annual Report and Accounts 2017-18[8] does not at all reflect on the issue of climate change. In this annual report energy is not a distinct sector, but rather part of a broader sector of ‘civil, infrastructure and energy’ (p. 32). If one combines this with the sector of aerospace as is done in the diagram of all medium and long-term business support on the same page of this report, it can be concluded that just like with ECAs of many other OECD countries a very large part of the portfolio of business transactions supported by UKEF contribute to significant greenhouse gas emissions.

5.              The scale of UKEF support for fossil fuel-related transactions clearly does not match British leadership in international efforts to combat climate change. The recently released and internationally approved IPCC special report[9] confirms that the world already is seeing the impacts of global warming through more extreme weather, rising sea levels and diminishing Arctic sea ice, among other changes. The report finds that limiting global warming to 1.5°C would require “rapid and far-reaching” transitions in land, energy, industry, buildings, transport and cities. Global net human-caused emissions of carbon dioxide (CO2) would need to fall by approximately 45 percent from 2010 levels by 2030, reaching ‘net zero’ by around 2050. It must be concluded from this report that all public support for new exploration and production activities of coal, oil and gas is to be stopped with urgency, while actions to limit global warming to 1.5°C must be accelerated.

6.              In addition to the physical risks, climate change also brings about significant financial risks for the global economy. To respond to such risks, a wide range of institutions is working to enhance climate-related financial disclosure practices, in the context of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD) for example.[10] The Norges Bank of Norway is contemplating the removal of oil and gas stocks from the benchmark index of the world’s largest government pension fund, the Government Pension Fund Global (GPFG).[11] Also the Bank of England is assuming a very welcome leadership role in developing proposals for the Prudential Regulation Authority (PRA) to adopt a strategic approach to managing the financial risks from climate change, taking into account current risks, those that can plausibly arise in the future, and identifying the actions required today to mitigate current and future financial risks, including new approaches to the disclosure on the financial risks from climate change[12].

7.              On the same day that the recent IPCC report was published, the Dutch central bank released a report on a stress test it did on the significant risks of shocks in energy transition/climate policies for the financial sector in the Netherlands.[13] The report concludes that the losses for financial institutions in the event of a disruptive energy transition could be sizeable. Individual financial institutions need to mitigate the risks of their portfolios by taking these energy transition risks into account. The report further signals that policymakers should help avoid unnecessary losses by implementing timely, reliable and effective climate policies. All these signals carry a significant warning for ECAs around the world – including UKEF.

8.              In this context it also is important to remind that one of the essential functions of ECAs is to take up risks that private companies are not able to absorb. In particular the commercial and political risks involved in ECA-backed fossil fuel related transactions in developing countries – including the risk of stranded assets - may leave the economies of low and middle-income countries vulnerable to significant amounts of debt. Research in the beginning of this decade showed that almost 80 percent of poor countries’ debts to other governments come from export credits[14]. Experience shows that the export credit guarantees are likely to jump in periods of economic shocks and crises, suggesting that also in the interest of developing countries the introduction of restrictions on ECA support for fossil fuel transactions should be put in place. 

9.              Furthermore, it is important to recall that the impacts of climate change are not only due in the future. Already in 2012 it was estimated that on average approximately 400 000 people – mostly children in developing countries – die every year because of climate change impacts.[15] Despite commitments of developed countries – including the UK – under the UN Framework Convention on Climate Change and the more recent Paris Agreement, greenhouse gas emissions continue to rise, endangering the fundamental human right to life of millions of people and the healthy ecosystems that sustain those lives. Since governments seem to fail in their commitments to deliver effective measures to reduce greenhouse gas emission levels, climate change litigation is stepping in.[16]

10.              To ensure that the Government of the UK will publicly commit to action that substantiates its leadership on climate change policies, we recommend that your Committee ensures that UKEF:

1. discloses information on all transactions that relate to the exploration, production and transportation of coal, oil and gas;
2. decreases the level of support to operations related to the exploration, production and transportation of coal, oil and gas in the near future, resulting in a complete phase out of such support no later than 2020.

In addition we recommend UKEF to shape leadership on climate change policies by forming alliances with other ECAs to end all fossil fuel support from these government backed institutions as soon as possible.

January 2019