Export Credit Agencies
Export Credit Agencies, commonly known as ECAs, are public agencies and entities that provide government-backed loans, guarantees and insurance to corporations from their home country seeking to do business overseas in developing countries and emerging markets that are considered too risky (commercially or politically) for conventional corporate financing. Unlike commercial banks that seek a market return on their loans or insurance, ECAs, as either official or quasi-official branches of their government (e.g. COFACE in France has private capital but acts on behalf of or with the mandate of the national government), only seek to recover their operating and financing costs. ECAs are part of a broader government policy context of industrial policy, trade and investment promotion. They are implicated in environmental, social and economic problems ranging from climate change to unsustainable debt, corruption and other problems plaguing the countries where they do business.
ECAs’ medium and long term loans and credits have doubled from 2002 to 2006 to over 120 billion USD. In 2007, ECAs supported about 10 per cent of world trade (and a greater proportion in developing countries), which represents about $1.4 trillion in transactions and investments. ECAs are collectively the largest source of official financing for developing countries, supporting large industrial and infrastructure projects, underwriting projects whose value is several times the combined annual funding of all Multilateral Development Banks.
Because most ECAs do not have social or environmental standards, they do not take into consideration the impacts of the projects they support on the environment or the rights of local peoples. This is a direct contravention of their governments' commitments to sustainable development. In fact, ECA guarantees support many projects that destroy forests, from palm oil plantations, pulp and paper mills to oil pipelines and large dams. As ECAs mitigate the risk of commercial banks, they reduce the banks’ incentive to carry out proper due diligence regarding, for example, the availability of legal wood supplies for the project they are financing or insuring.
One of the main global financial crisis’ impacts has been the lack of provision for financing trade transactions. In the wake of the economic downturn following the financial crisis, the demand for ECAs to facilitate trade flows is sharply increasing.
The European Union also sees the important role the Member States’ Export Credit Agencies should be playing to support trade finance. In December 2008 the Commission adopted a “Temporary Framework for State aid measures to support access to finance in the current financial and economic crisis”. Many Member States have increased the capacity of their official ECA to stabilise the economy and fill the potential gap in financing export when the private market stepped out.
ECA and climate change
ECAs are a major source of public international finance for fossil fuel projects in non-OECD countries. A 2000 study of the World Resources Institute (WRI) examined OECD ECA financing of CO2 emission intense investments and exports in developing countries from 1994 through the first quarter of 1999. WRI concluded that over the six-year period ECAs accounted for 44.4 billion USD in financial support for CO2 intensive projects and exports that were heavily concentrated in fossil fuel power, oil and gas development. The co-financing, leverage effect of ECA involvement attracted 103 billion USD in public and private finance. Although the OECD Common Approaches were strengthened in 2007, they do not include climate. However, ECAs should play an important role in promoting the transition to a low carbon economy in coherence with their national government climate commitments.
European vs Global ECAs
The US ExIm Bank, Australia's EFIC and Japan's JBIC and NEXI have adopted some environmental standards, but European ECAs have so far refused to recognise the harmful impacts of their involvement in developing countries.
On top of this, the role of emerging countries’ ECAs is rapidly increasing, notably the ones from the group of BRICs (China, India, Brazil and South Africa) The US Export-Import Bank for example reported to the US Congress in 2006 that, “by 2010, China’s Export-Import Bank and Sinosure (the state overseas investment insurance agency) will be lending and guaranteeing more than 70 billion USD annually for large scale investments in developing countries and economies in transition.” (“Blank Checks for Unsustainable Development”, Bruce Rich, Environmental Law Institute, 2007.)
ECAs from the industrialised countries coordinate their policies within the OECD Export Credit Group (ECG). This makes OECD discussions a useful point to raise concerns about ECAs. Since 2003 the ECAs of the OECD have committed themselves to common environmental assessment procedures and standards, known as the OECD “Common Approaches on Environment for Officially Supported Export Credits,” which were strengthened in 2007. It requires ECAs to screen projects for their environmental impacts. Under the Recommendation, ECA-backed projects are expected to comply with the World Bank/IFC safeguard policies and, for project finance projects, performance standards. However, these approaches remain full of holes allowing ECAs to derogate from the required standards and not preventing support for projects with severe environmental and social impact.
In 2006, an OECD Recommendation was adopted to deter bribery in officially supported export credits. In 2008 the ECG adopted principles and guidelines to promote sustainable lending practices (i.e. sustainable in terms of debt servicing burdens) in the provision of official export credits to low income countries. Although such commitments are steps in the right direction, they are far from sufficient to prevent ECA-backed projects from generating negative impacts on sustainable development and the realisation of universal human rights.
Over many years, the ECA-Watch network has engaged in a consultation process with the Export Credit Group of the OECD. In 2007 the network has decided to put the participation in further consultations on hold until ECA Watch input on how to improve the performance of ECAs is met by a substantive response from ECAs and the ECG.