Up to 100% risk cover with new green guarantee

To incentivise investment in green projects that contribute to the climate transition, EKN has launched a Green Export Credit Guarantee, which lets exporters and banks insure up to 100 per cent of the value of a transaction to protect themselves from the risk of non-payment. EKN’s standard export credit guarantees normally offer 95 percent risk cover.

In order to make use of the Green Export Credit Guarantee, the export transaction must be for green products or products with an end use as part of a green activity. EKN follows the EU taxonomy’s classification of green activities that contribute to climate change mitigation and climate change adaptation to determine whether an export transaction can be covered by the new guarantee.

At EKN, senior analyst Victor Carstenius anticipates great interest from banks and exporters: “Many banks are looking to increase their share of green lending, particularly those who issue green bonds where funds have to be channelled into green projects. Our new guarantee lowers their risk.”

From hotbed startups to established multinational giants, Swedish exporters enjoy a prominent position in cleantech, thanks to innovations that help facilitate the transition to a carbon-free society. Electric mining equipment, non-fossil fertilizers and biofuels are a few examples.

“We hope to see more transactions related to renewable energy, transmission, low carbon road and railway transport, low carbon manufacturing, waste management – to name a few examples,” says Carstenius. “We have exporters very much active in these sectors and we have already seen transactions in many of them over the last couple of years. We want to promote and enable more export transactions like these.”

There is no limit in terms of deal size for the new guarantee. EKN provides pure cover and SEK may provide refinancing with green, social and sustainable linked loans.

“Significant step”

TXFNews calls the new guarantee “a small but significant step that may be considered a leap when set alongside pending reforms to the OECD Arrangement and the emerging complex patchwork of regulations, the EU’s taxonomy and Climate Change Sector Understanding (CCSU).”

The export-oriented guarantee complements EKN’s Green Credit Guarantee launched in September 2021 for green investments and working capital needs within Sweden. That covers loans up to SEK 500 million for green investments and working capital needs only within Sweden and covers the bank’s risk up to 80 percent (up from a previous 50 percent). The two guarantee types have the same green incentive (higher cover ratio) and the same green definition (EU taxonomy).

Carstenius is optimistic about the new product. “In our first Green Credit Guarantee, for export related investments in Sweden, we have seen many cases of SMEs developing new technologies – biogas, fertilisers, batteries, electric boats, recycling, and so forth. Hopefully some of them will also make use of the Green Export Credit Guarantee for the specific export transaction.”

Push for modernisation

Many ECAs, including EKN, are pushing for a modernization of the framework that governs the scope of export credits. Many are calling for longer tenors and other means of incentivising green investments. “The two green guarantees we have launched are within our own mandate where we work with the cover ratio as the green incentive,” says Carstenius. “In time it would also be valuable if we can reform the OECD Arrangement and widen the CCSU. Sweden holds the presidency in the EU this spring so this is something we are focusing on in that context right now.”

Jørn Fredsgaard, department director, country, bank and sector at EKF (Denmark’s ECA) told TXFNews that “ECAs’ capacity to absorb risk is a crucial factor in the sector. While investments in the generation of green energy gravitate towards concentrations of GDP where economic activity is strongest – and this happens in the largest economies like China, India, EU and the US – mining investments will naturally gravitate towards geographies with natural ore deposits. This means a lot of investments are in countries that are generally high on the OECD country risk spectrum – the natural playground of ECAs, which tend to have the highest capacity for risk.”

Besides high national risk, another risk involved in green investment is often related to the fact that breakthrough technology isn’t always tried and tested at scale, which raises questions as to the bankability of large-scale investment. On the other hand, not doing all we can to halt climate change is probably an even greater risk.