Corporate report

Policy and practice on Environmental, Social and Human Rights due diligence and monitoring

Updated 26 September 2022

1. Purpose

This document sets out UK Export Finance’s (UKEF) policies, commitments, roles and responsibilities in respect of the management of environmental, social and human rights (ESHR) risks and impacts when we support projects overseas. As an integral part of UKEF support to UK exporters and in line with our international commitments, we identify and where appropriate conduct due diligence of the ESHR risks and impacts of projects we are asked to support. This statement is intended to inform exporters, banks, project sponsors and other interested parties on our arrangements for:

• identifying ESHR risks and impacts and carrying out due diligence to be satisfied that, as far as practically possible, we support projects which should be constructed and operated in line with relevant standards; and

• monitoring alignment of projects with relevant ESHR standards over the life of UKEF support.

2. Background

UKEF is the United Kingdom’s Export Credit Agency (ECA) and our statutory function is to support exports. We do so by assuming financial risks including the repayment of export credit loans made available to overseas buyers and project sponsors, usually repayable over 5 years and longer, often in respect of exports to projects. When asked to support loans for such business, we assess the financial risks of repayment and, allied to this, we also examine the associated ESHR risks and impacts to be satisfied these are identified, managed and mitigated in line with local and international ESHR standards.

3. Policy

It is UKEF’s policy that:

• we will take account of factors beyond the purely financial and of relevant government policies in respect of ESHR impacts on individual transactions^{[footnote 1]};

• we will comply with all international agreements which apply to the operations of ECAs^{[footnote 2]}. These agreements include the OECD Council Recommendation on Common Approaches for Officially Supported Export Credits and Environmental and Social Due Diligence (OECD Common Approaches), which informs the way in which member ECAs should address ESHR due diligence for projects and existing operations they are asked to support and ESHR monitoring after support has been agreed

• we will comply with the requirements of the Equator Principles, which UKEF has adopted

• we will not operate beyond international agreements which apply to ECAs^{[footnote 3]} or the Equator Principles and from 1 April 2020 UKEF has committed to consider how it will take account of climate change within our decision-making processes across all our products. This consideration will be proportionate to the risks and impacts associated with the projects and our support^{[footnote 4]}.

The OECD Common Approaches applies to all types of officially supported export credits involving exports of capital goods and/or services^{[footnote 5]}, with a repayment term of two years or more, relating to projects^{[footnote 6]} or existing operations in identified locations as defined.

The OECD Common Approaches recognises that the primary role of ECAs is to promote trade in a competitive environment (in contrast to development banks and agencies which focus primarily on development assistance) and that ECAs have a responsibility to consider the positive and negative ESHR risks and impacts of projects, in particular those in sensitive sectors and/or located in or near sensitive areas, and the ESHR risks associated with existing operations, in deciding whether to offer support.

The Equator Principles is a risk management framework adopted by financial institutions, including some ECAs, for determining, assessing and managing ESHR risks in projects. UKEF began implementing the latest iteration of the Equator Principles (EP4) from 1 July 2020^{[footnote 7]}.

In line with the OECD Common Approaches and Equator Principles, we:

• identify ESHR risks and carry out due diligence to be satisfied that projects should comply with applicable local and relevant international laws, and align with international ESHR standards before support is provided; and

• monitor ESHR performance of projects to be satisfied they are being constructed and operated in compliance with applicable local and international laws, and align with international environmental and social standards after support has been provided.

This ESHR risk identification and due diligence is conducted alongside commercial and financial underwriting, which includes anti-bribery and corruption and sustainable lending, and we endeavour to:

• make the best judgments we can, based on the circumstances and the information and timeframes available to us, in order to require mitigation of the most salient adverse ESHR impacts both to the environment and affected people; and

• undertake appropriately focused ESHR due diligence and monitoring commensurate with the likely scale of risks and their impacts, taking account of UKEF’s ability to influence necessary change and the commercial timescales involved.

4. Practice

4.1 Pre-issue

We determine whether applications for support fall within the scope of the OECD Common Approaches^{[footnote 8]} and/or Equator Principles. If so, we then:

• Screen applications to determine whether support is for a ‘project’ or an ‘existing operation’ and establish whether there may be potential ESHR risks and impacts, and, as appropriate;

• Classify and categorise projects, and where appropriate existing operations:

  • ‘A’ where there are potential significant adverse ESHR risks and/or impacts; or
  • ‘B’ where there are less adverse ESHR risks and/or impacts (than Category A); or
  • ‘C’ where there are minimal or no adverse ESHR risks and/or impacts; and

• Review projects and existing operations categorised A or B by benchmarking ESHR Impact Assessments and Environmental and Social Management Plans produced by the project sponsor against host country laws and the relevant international standards, typically the International Finance Corporation (IFC) Performance Standards^{[footnote 9]}.

In undertaking our review, where we identify that a project or existing operation is not in alignment with relevant IFC Performance Standards, we assist, where possible, the project sponsor and/or the exporter with practical and solution-orientated advice on managing the potential project-related ESHR risks and impacts.

Where a review of the ESHR risks and impacts of a project or existing operation show it does not, or is unlikely to align with the international standards, notwithstanding our efforts and advice an application for support would normally be refused, in accordance with the OECD Common Approaches and the Equator Principles.

Where projects or existing operations are classified as Category A UKEF notifies interested parties on our website that we:

• are considering providing support and signpost interested parties to published ESHR impact information, at least 30 calendar days before deciding whether to provide support (in line with the OECD Common Approaches)

Where projects or existing operations are classified as Category A or B UKEF notifies interested parties on our website that we:

• have decided to support a project or existing operation and provide information on the applicable international standards that the project or existing operation was benchmarked against, and information on the ESHR works and impacts^{[footnote 10]}.

4.2 Post-issue

After UKEF provides support, we undertake appropriate post-issue ESHR monitoring of projects and existing operations classified Category A and B to be satisfied that they are being constructed and operated in line with applicable local and international laws and international standards. The level of post-issue monitoring is determined by reference to the categorisation and potential ESHR risks and impacts of each project or existing operation. Post-issue monitoring can take the form of reviews of:

• self-reporting by the project sponsor; and/or

• reporting by an Independent Environmental and Social Consultant (IESC) with a duty of care to UKEF (and any other OECD ECAs involved in the project); and/or

• site visits carried out by UKEF or our representatives.

Where projects or existing operations deviate from applicable laws and standards, we seek actions to be put in place by the project sponsor to bring the project or existing operation back on track over an appropriate and agreed timeframe, as necessary through establishing a remedial action plan.

4.3 Disclosure

UKEF publishes in its Annual Report and Accounts details of export contracts supported including, where relevant, the ESHR risk/impact categorisation in line with the definitions in the OECD Common Approaches and Equator Principles, estimated operational Greenhouse Gas emissions, and the status of projects and existing operations that reached financial close in that year or are being monitored for alignment with host country laws and international standards, and other information required to be reported by the OECD Common Approaches and/or the Equator Principles. UKEF reports to the OECD and the Equator Principles Association in line with the requirements of the OECD Common Approaches and the Equator Principles respectively.

4.4 Evolving Standards

ESHR due diligence and monitoring is an evolving field and, in order to maintain effectiveness, we engage with relevant external parties to keep abreast of ESHR developments and contribute to multi-lateral discussions regarding ESHR policy and practice amongst OECD ECAs and with the Equator Principles Financial Institutions, taking account of the objective to operate on a level playing field internationally.

5. Environmental and Social Risk Management Team

The Environmental and Social Risk Management Team (E&S Team) of UKEF is responsible for carrying out ESHR screening, classification and review of projects and undertaking ESHR monitoring after support has been provided. Our staff are professionally qualified to undertake the necessary ESHR due diligence and provide advice to project sponsors and/or exporters and UKEF decision-takers. The E&S Team has access to a panel of independent environmental consultancies to supplement its advice as and when necessary, including situations where particular expertise is unavailable in the E&S Team.

The E&S Team reports to the Director of the Business Group, who in turn is responsible to the Accounting Officer (Chief Executive) regarding ESHR matters.

6. Export Guarantees Advisory Council

The Export Guarantees Advisory Council is a statutory Non-Departmental Public Body, established to provide the Secretary of State with advice at their request on matters related to UKEF. In practice, the principal focus of its terms of reference^{[footnote 11]} is to advise on the application by UKEF of its ethical policies. It routinely reviews transactions that UKEF has supported for adherence to the OECD Common Approaches so Ministers can be assured that, amongst other things, UKEF fulfils its ESHR policies and practices. The Council’s Annual Report and the minutes of its meetings are published on UKEF’s website.

7. Review Date

This Statement shall be subject to annual review to determine if it requires revision.

UK Export Finance November 2020

1. Source: UKEF Mission and Principles Statement. ↩

2. Source: UKEF Mission and Principles Statement. In certain limited circumstances such as the provision of urgent assistance to support humanitarian needs, UKEF may need to adopt a more flexible position taking a risk based approach.  In these limited circumstances, UKEF will continue to assess and manage ESHR risks and align with applicable ESHR frameworks to the extent practicable. ↩

3. Source: Public Consultation on Revisions to ECGD’s Business Principles 2010, the Government’s Interim and Final Responses. ↩

4. Government Response to the Environmental Audit Committee’s Nineteenth Report of Session 2017–19, dated 31 October 2019 ↩

5. Excluding agricultural commodities and military equipment, and products where the risk is on the exporter. ↩

6. ‘Projects’ refer to applications relating to exports of capital goods and/or services to an identified location of:

   • any new commercial, industrial or infrastructure undertaking, or

   • any existing undertaking that is undergoing material change in output or function, which may result in changes to the operation’s environmental and/or social impacts.

   A project includes those components that the buyer and/or project sponsor (including contractors) directly owns, operates or manages and that are physically and technically integrated with the undertaking. ↩

7. Application of EP4 has been mandatory for all Equator Principles Financial Institutions from October 2020. ↩

8. Civil aircraft supported by export credit loans fall within the scope of the Common Approaches; to manage ESHR risks relating to these exports it is a requirement that the airframes and engines must meet relevant EU and International Civil Aviation Organisation environmental standards. ↩

9. See IFC performance standards ↩

10. In response to an inquiry by the Environmental Audit Committee of the House of Commons, session 2008-09, the Government agreed that UKEF would issue such Notices of Support in respect of cases categorised as A after support for a project had been decided. ↩

11. See the Export Guarantees Advisory Council’s website ↩