OECD modernises export credit agency arrangement to boost green trade

Thu 20 Jul 2023
Posted by: Richard Cree
Trade News

Green trade

The Organisation for Economic Co-operation and Development (OECD) has modernised the terms of its Arrangement on Officially Supported Export Credits to allow export credit agencies (ECAs) covered by the arrangement, which includes UKEF in the UK, to extend more generous incentives for climate-friendly transactions.

The OECD describes the Arrangement as a “gentlemen’s agreement” between participants, which include Australia, Canada, the EU, Japan, Korea, New Zealand, Norway, Switzerland, Turkey, the UK and the US.

It was created in 1978 building on an export credit “Consensus” agreed by fewer countries two years earlier. It is regularly updated to reflect the needs of participating countries and changes in global trade.

New rules

Under the new rules, UKEF will now be allowed to offer better or longer repayment terms and more flexible finance structures for more renewable and green transactions. 

In addition, the minimum credit risk premium rates have been lowered by applying a “term adjustment factor" for higher-risk transactions with longer repayment terms.

Jane Tait, a customs consultant at the Institute of Export & International Trade and an expert in sustainability and green trade see this announcement as another support for green finance that she says should help exporters bolster trade.

“When asking for green finance then the OECD, like many other organisations and governments will expect the business case to be fully ESG compliant and report accordingly.

Basically, if you do not report along ESG lines then access to green finance will be limited. In this regard, it will spread across the global trade arena.”

Towards net zero

Earlier in the year, having created a new department for energy and net zero, the UK government published its first Green Finance Strategy aimed at helping to finance the transition towards a Net-Zero economy by 2050.

The new OECD arrangement follows a proposal from EU countries to do more to encourage green trade and climate-friendly transactions. It includes an expansion of the scope of green or climate-friendly projects eligible for longer repayment terms (eligible under the “Climate Change Sector Understanding” or CCSU).

These include projects related to environmentally sustainable energy production; CO2 capture, storage, and transportation; transmission, distribution and storage of energy; clean hydrogen and ammonia; low emissions manufacturing; zero and low-emission transport; and clean energy minerals and ores.