OECD Consensus update to expand export credit support for climate-friendly and green projects

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The OECD Arrangement on Officially Supported Export Credits (known as the OECD Arrangement or the OECD Consensus) is the key source for regulating the terms and conditions upon which export credit agencies (ECAs) in participating countries can provide support to their exporters. The Participants to the Arrangement are Australia, Canada, the European Union, Japan, Korea, New Zealand, Norway, Switzerland, Türkiye, the United Kingdom, and the United States.

On 31 March, OECD countries finally reached an agreement in principle on an EU initiative to modernise export credit rules to better support the green transition. This long-awaited development could have far reaching consequences for the ability of ECA-supported financings to continue to assist to power the energy transition in both developed and developing markets. The reforms have been discussed and considered for several years and are expected to come into force later this year.

The deal to update the OECD Arrangement will provide streamlined terms and conditions so that government-backed export finance can better meet the needs of exporters in an increasingly competitive landscape. It widens the scope of green and climate-friendly transactions benefitting from extra incentives in the form of more flexible financial terms and conditions and reflects the reality that many green projects, or projects that would otherwise have a positive impact on the environment, need export and agency finance or other government support to be commercially viable.

Within the package of reforms, the Participants agreed to expand the scope of green or climate-friendly projects eligible for longer repayment terms, as permitted under the Climate Change Sector Understanding (CCSU) to include those 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-emissions transport; and
clean energy minerals and ores.

The package also provides more generous and more flexible financing terms and conditions for all projects eligible for the CCSU, as well as for all other transactions supported according to the Arrangement by:

increasing the maximum repayment term from 18 years to up to 22 years for CCSU-eligible (i.e. green or climate friendly) projects, and from 10 years to 15 years for most other projects;
more flexibility for repayment terms; and
adjusting the minimum premium rates for credit risk for longer repayment terms and obligors with a higher credit risk rating.

We expect these developments to have a positive impact on the ability of borrowers in developing markets to raise finance for certain projects, although we would have liked to have seen the updates to the OECD Arrangement go further and also incorporate social projects such as hospitals, housing and schools, and we also eagerly await the full text of the updates to be able to assess them fully.