In March, after years of talks, the members of the OECD Arrangement on export credits heralded a new dawn for export finance offered by wealthy nations, as they try to remain competitive with countries such as China and India. Jacob Atkins looks at what has been announced and how it compares to the reforms industry figures and campaigners have been clamouring for.


They use billions of taxpayers’ money every year and play a crucial role lubricating global trade and underpinning the construction of projects as diverse as railways in Turkey, gas fields in Australia, and hospitals in Ghana.

But for organisations of such consequence, export credit agencies (ECAs) garner scant attention outside of the world of export finance, and even less so the hefty, byzantine rulebook – the OECD Arrangement on Officially Supported Export Credits – which underpins how ECAs in most of the developed world operate.

After years of slow and piecemeal negotiations, the Arrangement’s participants clinched a deal at the end of March on a modernisation package that has been described as a “game changer” by industry stakeholders. It is the biggest shake-up in years to the pact, a so-called gentlemen’s agreement first reached in the 1970s.

The export finance market had been growing increasingly impatient as the conservative rulebook grew stale in the face of challenges such as competition from emerging export credit powerhouses, climate change, the energy transition and the ongoing need for affordable financing in the developing world.

ECAs, bankers, borrowers and environmental campaigners have long called for reform, in addition to the bans on coal support and changes to local content rules that were introduced in recent years.

Here, GTR looks at what was being lobbied for, and what the new modernisation deal has delivered.


Climate-friendly projects and fossil fuels

What they wanted

In the global debate over how to tackle global warming, the role of ECAs has largely escaped the intense scrutiny applied to commercial banks and insurers, despite a steady drumbeat of campaigns from a handful of NGOs such as Oil Change International and Friends of the Earth.

But ahead of a March negotiating round of Arrangement participants, 175 civil society organisations from around the world called on developed countries to write an absolute ban on oil and gas support into the rules of the pact, with only miniscule exemptions.

The signatories, including Friends of the Earth, Greenpeace and the World Wildlife Fund, said in an accompanying statement that ECAs “play a catalytic role in shaping our global energy systems” and that their finance “is government-backed, and often concessional, helping prop up fossil fuel projects and infrastructure which would otherwise be too risky for the private sector to finance alone”.

“ECAs have kind of flown under the radar in terms of their problematic financing practices,” says Nina Pušić, the ECA climate action strategist at Oil Change International, which co-ordinated the position.

She tells GTR that ECAs are a “lynchpin” of whether the world will meet climate targets such as limiting warming to 1.5 degrees above pre-industrial levels, but that as long as “there’s no public pressure on changing their practices, I don’t think they’re going to change based on the will or desire from export finance practitioners to reach our climate goals”.

Climate warriors are not alone in considering an outright prohibition on fossil fuels. At least eight heavyweight export credit providers, including Canada, the UK, France and Denmark, have already implemented such policies while others are quickly phasing out fossil fuel projects from their books.

The European Council, which comprises the bloc’s 27 member states, has also called for such a move to be discussed at the OECD level.

Commercial banks, too, have been keen on an overhaul of the Arrangement’s chapter on climate change and renewable energy, the so-called “sector understanding” on those issues.

In an influential white paper on sustainable export finance, published in 2021, the International Chamber of Commerce (ICC) called for “a coherent government-wide policy” on how ECAs abide by global commitments such as the Paris climate agreement, something which is yet to come to fruition. It also urged countries to “grow momentum” toward phasing out fossil fuels through leading by example.

The introduction of pricing incentives for projects deemed to be green, chiefly renewable energy deals, has also been a common demand. The participants “should consider including a framework for ESG eligibility and an associate premium incentive to encourage users to orient towards such climate goals”, said Sumanta Panigrahi, Citi’s interim co-head of export and agency finance, speaking to GTR before the March announcement.

Meanwhile, Ram Shalita, CEO and partner of financial arranger Bluebird Finance and Projects, told GTR that any reform of the climate sector understanding should be accompanied by a streamlining of rules on environmental due diligence. He argued that voluminous impact assessments and third-party validation of environmentally and socially low-risk projects has “become a trend that’s got way out of proportion”.

“Everything is becoming like a category A [project], everything is becoming huge” in terms of the number of reports and third-party verifications required, he said at the time. Category A projects are those deemed to pose the highest environmental risk and are subject to far more extensive impact assessments.

While ECA approaches on environmental risks are currently driven by the International Finance Corporation standards, Shalita argued the OECD Arrangement should create its own, simplified, framework for environmental assessments.

What they got

As was expected, an overhaul of the climate sector understanding was a major feature of the modernisation package unveiled in March. Although the final text is yet to be hammered out – and will require formal approval by the EU – the participants agreed to an expansion of the types of projects that are classified as climate-friendly to include “environmentally sustainable energy production”, clean hydrogen and ammonia, low emissions manufacturing, zero and low emissions transport, and clean energy minerals and ores.

Such projects will also enjoy much longer maximum tenors: up to 22 years, compared to the previous 10 to 18 years available under the current iteration of the Arrangement.

ECAs and commercial lenders are delighted with the news. “This is a potential game changer for our industry as we rise to the challenge of climate change and delivering a just and equitable transition,” says Chris Mitman, head of export and agency finance at Investec, and co-chair of the ICC working group on export finance sustainability.

Tim Reid, CEO of UK Export Finance, says the reform “means there will be incentives in place for export credit agencies to support climate-friendly and green transactions. Longer repayment terms and a more flexible approach will enable clean growth projects to rightly be prioritised.”

Those who were calling for a tough stance on fossil fuels were left dismayed, however. David Drysdale, head of the OECD’s export credits division, tells GTR that despite the EU Council’s urging, the notion of banning support for fossil fuels entirely was not even tabled or discussed during the modernisation talks.

Oil Change International’s Pušić is wary of what her group describes as “vague, undefined terminology” in the announcement, which could leave the door open for gas, and says that support for products such as clean hydrogen and ammonia could effectively prolong the life of greenhouse gas-producing infrastructure.

Nevertheless, Drysdale explains that while definitions have not been finalised, gas-fired power will not be included in the expanded climate sector understanding.

Kate DeAngelis, international finance programme manager with Friends of the Earth US, says the OECD group “should not be a piggy bank for the fossil fuel industry”. “We reject the pretence that technologies like carbon, capture and storage are ‘climate friendly,’ which export credit agencies would have us believe. Export credit agencies supporting these technologies extends a lifeline to the fossil fuel industry rather than encouraging the necessary shift toward a just energy transition.”


Repayment flexibility

What they wanted

The genesis of the Arrangement, back in 1978, was to create an “even playing field” among ECAs and avoid competition on pricing so as not to disadvantage those countries unable to offer low interest rates.

This approach has been gradually undermined as non-Arrangement members such as China, India and Brazil have become giant trading nations and substantial public export finance providers. Unfettered by the OECD rules, they are able to offer more flexibility to customers.

Leading up to the reform package, the Arrangement participants appeared in harmony on easing these rules, which Drysdale describes as “conservative”, and introducing more flexibility on tenors and repayment terms.

Some of the top concerns about the historical rules were summed up last November by lobby group Business at OECD (BIAC). “The (repayment) limitations of the [OECD] Consensus do not reflect longer life cycles of products and goods missing realistic scenarios concerning their revenues” and “the repayment terms permitted by the Consensus are outdated compared to common market practice today”, the group said in a position paper.

BIAC proposed making permanent the OECD’s Covid-era softening of the minimum down payment from 15% to 5% of the contract value, a move that attracted widespread support. The group says liquidity-poor borrowers struggle to raise financing or credit insurance for deposits, particularly on large contracts.

One of the most coveted reforms to the Arrangement has been longer repayment times, with a general view emerging that they should be extended to 18 years for all projects, up from the current 10 to 18 years depending on the project type. “The industry has been pointing to this specific reform backlog for a very long time,” BIAC said in its paper.

Noting that non-OECD countries are offering more competitive repayment terms, the paper argued that “the rigid conditions” of the Arrangement “limit the otherwise positive aspects of ECA financing in customer discussions”.

“In this respect, ECA-covered financing is no longer a self-running bestseller. Furthermore, the instrument does no longer address the market needs. Many capital goods have a much longer economic life than is reflected by the repayment limitations of the Consensus.”

But Investec’s Mitman had warned against a scenario where the participants heeded calls to lift maximum tenors “but then don’t agree to flatten the premium curve, which makes the use of those extended terms prohibitively expensive. That’s why the ICC stressed it must be put through as one package.”

BIAC also wanted the rules to allow repayment schedules to be linked to expected cash flow and the underlying project’s economic life, which it said would enhance “the competitiveness of exporters on the one hand but also [strengthen] borrowers’ abilities to repay in a timely manner”.

For Citi’s Panigrahi, the debate on pricing and repayment flexibility posed an existential question for the future of the Arrangement. “I think an alternative that could be considered is should the OECD guidelines be expanded to include some of the other relevant countries, onto a common understanding. I think there will be benefits around that.”

Any such global deal would likely be a fractious and lengthy process. In 2020, talks aimed at reaching a global consensus on export credit policy, which included non-OECD countries, were abandoned by the EU, US, Japan and other countries because of “significantly divergent” positions on core issues.

What they got

The OECD nations opted to boost maximum repayment terms for all non-climate sector projects to 15 years. Assuaging concerns over whether the introduction of such a change would create difficulties for repayment schedules, the announcement also says the modernisation will introduce “further repayment flexibilities and adjust the minimum premium rates for credit risk for longer repayment terms”.

Drysdale at the OECD says that negotiators coalesced around the 15-year figure “very quickly”. “The Arrangement is very conservative on repayment terms,” he adds. “15 years is in the ballpark for what people would consider a reasonable repayment term for an infrastructure project. 10 years is considered to be extremely conservative, but 10 years [dates to] when the OECD players were the major players in finance… but now you have other competitors.”

The reforms on repayment flexibility were predictably welcomed. Reta Jo Lewis, head of the US Export-Import Bank, says they will ensure “that export credit agencies are operating on a level playing field and complementing, not competing with, private financing”.

The ICC’s director of global policy Andrew Wilson tells GTR that the deal “is an important step forward in maximising the potential contribution of export finance to a sustainable and inclusive global economy”.

The March announcement does not, however, include the permanent lowering of the minimum down payment to 5% as sought by BIAC and others.


Focus on social impacts

What they wanted

Some of the largest ECA contracts awarded are for what is currently loosely defined as social financing. Primarily in developing countries, these are typically projects to build water infrastructure, improve roads, construct health facilities and even expand food markets.

While in the last few years such lending can comply with the social loan principles, developed by the global loan market associations, there are no formal criteria for social impact projects and what pricing benefits they might enjoy in the ECA rulebook.

The ICC has argued that developing a sector understanding on social impact projects should be high on the reform agenda and not be shunted aside as energy on ESG efforts is taken up by the focus on rejigging the parts on climate.

“We don’t have any definitions of what social profits might be for the purposes of inclusion in the OECD consensus,” says Investec’s Mitman.

“It’s still disappointing that there’s not enough discussion about social projects now, because to my mind, it’s part of the equitable transition equation,” he tells GTR.

“Supporting more social infrastructure in Africa and making it more affordable should be an easy give for the polluting nations of the west and north. It is something that you can do immediately to alleviate the cost of delivering and maintaining social infrastructure: housing, water, healthcare, all of these things which are so badly needed.”

What they got

The modernisation package does not specifically address social impact projects, let alone carve out a new sector understanding. But Drysdale at the OECD says the lengthening of maximum tenors to 15 years covers social impact projects.

Mitman says in response to the announcement that the “changes to the OECD rules will improve affordability of green and social infrastructure in developing markets where the socio-economic impact of such infrastructure cannot be overstated”.

“They will also enable the export finance community to play a much greater role in helping deliver the UN Sustainable Development Goals.”

The ICC had called for a social impact approach in its 2021 white paper on sustainability in export finance, but said in a follow-up report earlier this year that there had been “limited appetite from the participants to the OECD Arrangement to consider a dedicated policy framework” for social infrastructure projects.