UKEF commits to going carbon neutral by 2050 ahead of COP26

On 22 September 2021, UK Export Finance (UKEF), the UK's Export Credit Agency (ECA), announced a new strategic plan to decarbonise its portfolio and reach net zero by 2050. This forms part of UKEF's new Climate Change Strategy, which involves managing climate-related risks in its existing portfolio and enhancing its future support for clean growth.

UKEF, a UK government department working alongside the Department for International Trade, has a capacity of £50 billion to support UK exports by offering products such as loans, insurance or guarantees. £12.3 billion of support was issued to businesses last year, representing a dramatic increase from £4.4 billion in the previous year, with the ECA’s direct lending capacity now standing at £8 billion.

UKEF's Climate Change Strategy

The newly-announced Climate Change Strategy contains several ways in which UKEF will embed environmental considerations in its work. These include setting interim decarbonisation targets for its portfolio emissions, using a specialised £2 billion direct lending facility exclusively for clean growth projects, and publishing annually information about its environmental progress.

The five pillars that make up the strategy are:

1. Increasing UKEF support for clean growth and climate adaptation
2. Reducing greenhouse gas emissions from UKEF's portfolio
3. Understanding and mitigating UKEF's climate-related financial risks
4. Transparent reporting and disclosure against UKEF's environmental commitments
5. Providing international leadership on climate change amongst ECAs

It is striking that an entire pillar of the new strategy is devoted to UKEF's international leadership. This comes at a time when the UK government is increasingly cultivating a reputation as a climate change leader, with the UK hosting the COP26 summit next month and Boris Johnson, UK Prime Minister, last week encouraging the UN General Assembly to take bolder climate action.

Anne-Marie Trevelyan, Secretary of State for International Trade, said:

"[t]he UK will host this year's COP26 summit in Glasgow and we are determined to lead by example. Trade and Climate are closely interlinked, which is why we are proud that our award-winning export credit agency, UK Export Finance (UKEF) is launching its Climate Change Strategy".

UKEF's Work in Climate Action

UKEF’s strategy comes after several years of ramping up its support for sustainable and environmental projects. In 2020, UKEF backed £2.4 billion of sustainable projects – double the figure for the previous year – and in August this year it provided a guarantee for a £430 million green transition loan for Aberdeen-headquartered Wood Plc, the first UKEF-backed green transition loan of its kind. UKEF is now trebling the number of staff working on financing renewable exports and has committed to publishing another strategy in 2025, providing accountability for its progress.

The Role of ECAs in Building a Greener Future

This comes at a timely point for ECAs globally. Export Development Canada (the Canadian ECA) announced a commitment in July to reach net zero by 2050. Other ECAs are also making strides in their environmental commitments. In April 2021, seven European ECAs (including UKEF) set up the 'Export Finance for Future' coalition, as part of which they committed to ending support for unabated coal power and exploring how to phase out support for other fossil fuels. Meanwhile, in January 2021 President Biden announced that the Export-Import Bank of the United States (the US ECA) would work to identify ways to advance sustainable development and promote ending the international financing of fossil fuels.

It is now well-recognised the important part international trade has to play in climate change, with the World Bank publishing a report this September entitled "The Trade and Climate Change Nexus". Given the crucial role ECAs play in the international trade sphere, their environmental policies will have a real impact on making this part of the global economy more sustainable. We await further announcements in the run up to COP26.