Export Development Canada (EDC) has launched a new guarantee product to help carbon-intensive companies secure financing as they transition towards cleaner activities.

As part of the new initiative, Canada’s export credit agency (ECA) will partially guarantee loans from commercial lenders to heavy-emitting companies in the country, including in sectors such as cement, aerospace, and oil and gas.

The product is targeted at medium and larger-sized corporates and will support their carbon reduction efforts, with an EDC spokesperson telling GTR businesses must be seeking finance for technologies and upgrades in one of nine areas.

These include projects for hydrogen, bioenergy, carbon capture and storage, carbon trading, renewable infrastructure, sustainable agriculture, microgrids, grid modernisation, as well as production efficient technology.

The agreement will support businesses that are either directly or indirectly involved in exports, or have plans to begin exporting, the spokesperson adds.

Bank of Montreal (BMO) is the first financial institution to sign up to the new initiative, with EDC set to cover 50% of loans the bank provides to Canadian companies, up to a maximum amount of US$60mn per obligor and with a tenor limit of seven years.

The commercial bank is expected to fund US$1bn through the programme over the next three years.

EDC’s spokesperson says the plan is to onboard additional financial institution partners in the future, but will use the pilot with BMO to test whether the guarantee structure “serves the market needs”.

“We understand the urgent need to address climate change, and as Canada’s export credit agency, we have a role to play,” says Justine Hendricks, senior vice-president and chief corporate sustainability officer at EDC.

“Working with Canada’s financial institutions like BMO, we can support Canadian businesses’ access to the financing they need to be a part of this important transition in Canada and globally.”

Over the past year, EDC has moved to bolster its climate credentials and became the first ECA to set a net-zero target in July. It has yet to rule out backing for fossil fuel projects and companies. Historically, the ECA has been a prolific supporter of these industries due to Canada’s large natural resources sector.

While seven European countries have formally committed to work towards eradicating support for fossil fuels as part of the Export Finance for Future (E3F) coalition, the UK is the only nation to have already done so.

Government officials from France and the Netherlands intimated at a meeting in November that support for certain projects, such as those in the natural gas sector, could last beyond the end of 2022.