In times of macroeconomic and geopolitical uncertainty, such as the current market environment, private companies often hesitate to engage in international trade. This fear is understandable but only exacerbates economic slowdowns and volatility. This is where public-private support from Export Credit Agencies (ECAs), supported by global organisations like the Berne Union step in and support international trade.

Credit insurance is an invaluable part of the international trade ecosystem, and multiple players exist in this arena. At ExCred International, Trade Finance Global’s (TFG) Deepesh Patel sat down with Maëlia Dufour, director international relations, business development, rating, environment and climate at Bpifrance and president of the Berne Union, to learn more about the intricacies of the trade credit industry.

ECAs and private credit insurers: same, but different?

From the outside, ECAs and private credit insurers appear to perform the same duties. But after a closer inspection, there are some important differences between the two.

Dufour said, “The main difference is that export credit agencies have to respect the principle of subsidiarity. So they let private insurers insure first and, if they cannot, the exporters then come to the ECA.”

This distinction is vital for the insurance market. In terms of trade credit, private actors are almost always the first choice when possible, but when market conditions are unfavourable or a company lacks knowledge of the local market, ECAs play an important role.

SMEs are particularly vulnerable to economic volatility. When the economy goes through a crisis, smaller companies often see their lines of credit or insurance decrease. Dufour added, “In times of crisis, if the private insurers step out, then we [ECAs] can step in by reinsuring private insurers in order for them to be able to insure the SMEs and banks.”

Though there is this distinction between public and private insurers, Dufour notes that they work towards the same cause, which is developing export businesses and fulfilling market needs.

In recent years, the market for both private and public trade credit insurance has grown substantially. In the face of COVID-19, the Russia-Ukraine war, and rising inflation, world trade has become riskier than ever. But Dufour pointed out that world trade has recently increased by around 10%.

The combination of increased risk and increased trading means trade credit insurance is more needed than ever.

Berne Union: a common meeting ground for all 

The Berne Union is a unique and powerful international organisation. It has 87 members from over 67 countries, representing ECAs, private insurers, and multilateral institutions. The diversity of the union is the strong point. Industry experts from across the world can communicate and share advice. 

This association is vital to the success of the trade industry. As the world gets more complex and interconnected, no individual or company can navigate it alone. 

According to Dufour, all members of the Berne Union share strategies and work towards a common goal.  “We all have the same objective, to provide credit insurance to our exporters and large companies, as well as SMEs.”

The plan to get to net zero carbon

One of the most important and complicated strategies discussed between Berne Union members is sustainability. Berne Union members are committed to a net-zero target and spend much of their time discussing how to properly implement these standards. 

While discussing her other role with Bpifrance, Dufour said, “We have put in place decarbonisation of our portfolio… As you know, we don’t insure any more coal, oil, or gas. And we have created financial incentives for the green projects.”

As president of the Berne Union, Dufour plans to encourage members to step forward and take concrete actions to reach the net-zero goal. 

Dufour said, “Climate is one of my objectives [as president of the Berne Union]. We discuss a lot about what the ECAs, or private insurers, or multilaterals are doing regarding climate change, and this includes developing financial incentives, decarbonising portfolios, and how to reach the net-zero targets.”

Even though there has been lots of progress, both internally in Bpifrance, and within the Berne Union, there is a lot of work to be done. 

Dufour said, “As you know, it will be a long marathon and we have to keep being in the race and reach the finish line.”

The fight against climate change is a collective movement, one that will not be won in the near future, but action needs to be taken now. Bpifrance and the Berne Union understand this urgency and are constantly finding new ways to collaborate and take tangible steps towards a more sustainable future.

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The 2021 United Nations Climate Change Conference (COP26), which will be held in Glasgow at the end of this year, will be the occasion for countries, civil society, and companies to gather with the objective of accelerating the transition and the fight against climate change.

Countries will review their decarbonisation objectives and eventually set more ambitious milestones to comply with the framework set by the Paris Agreement.

Besides this meeting, all the parties are invited to rethink their activities in a more sustainable way: ban activities that are not consistent with the decarbonisation trajectory, and engage themselves in the energetical and ecological transition. The climate crisis forces them to consider the situation not only with a national prism, but with a global prism that considers both national and international impacts.

In this context, Export Credit Agencies have a critical role to play. Responsible for the implementation of the export finance policy of the country to which they are attached, these organisations have the mandate to support their country’s economy by giving adapted financial tools to exporters.

“Responsible for the implementation of the export finance policy of the country to which they are attached, these organisations have the mandate to support their country’s economy by giving adapted financial tools to exporters.” 

Acting as the armed arm of their government, decarbonisation objectives of countries have direct consequences over ECAs activities. To fight against the climate crisis, governments manage these activities via regulation or strategic objectives.

Hence, some ECAs (OECD members) apply the OECD Recommendation of the Council on Common Approaches for Officially Supported Export Credits and Environmental and Social Due Diligence in their analyses. The purpose of this recommendation is to ensure that export credits meet local regulations in the host country and any relevant international standards, mainly those developed by the World Bank (WB) and the International Finance Corporation (IFC).

Hence, some ECAs (OECD members) apply the OECD Recommendation of the Council on Common Approaches for Officially Supported Export Credits and Environmental and Social Due Diligence in their analyses. The purpose of this recommendation is to ensure that export credits meet local regulations in the host country and any relevant international standards, mainly those developed by the World Bank (WB) and the International Finance Corporation (IFC).

This due diligence is the first regulation implemented to ensure that projects supported respect environmental and social international standards.

Some ECAs go further than this by creating their own climate policy with the aim to decarbonate their portfolio and, consequently, increase the green portion of their portfolio by providing financial incentives for sustainable projects.

Decarbonate portfolio 

This strategy can be seen in most ECAs’ climate policies, as they ban support to the most emissive sector of activity, such as coal exploitation. Some ECAs go further by planning to ban the support to all fossil fuels projects accordingly.

As for Bpifrance Assurance Export, the Finance law for 2020 has already banned support for coal, shale oil, gas and oil exploitation using routine flaring. In 2021 a three-stage scenario for the termination of state guarantees for oil and gas projects was adopted:

• as of 2021, Bpifrance Assurance Export will end support for heavy fuel oil, oil shale and oil sand projects

• as of 2025, it will cease support for the exploitation of new oil fields,

• by 2035 at the latest, support for the exploitation of new gas fields will be terminated

Moreover, the support to thermal power plants is now limited to projects improving the carbon footprint of the electricity mix of the recipient country. This should encourage recipient countries to move towards energy transition.

Some ECAs also study the eventual implementation of a mechanism of disincentives for projects that are not consistent with their climate policy. Indeed, projects that are not aligned with decarbonisation objectives bear more climate-related risk. Therefore, it seems consistent to integrate climate risk to risk analysis as this type of risk could have financial consequences.

Some ECAs have planned or have already implemented a calculation of their carbon footprint portfolio to follow their decarbonisation trajectory. Some tools exist to regulate the GHG emissions reporting, such as the TCFD initiative. Indeed, as part of the Bpifrance Assurance Export climate strategy, an assessment of the carbon footprint of the portfolio has been performed every year since 2020. This calculation allows for the analysis of its decarbonisation trajectory and to check the more emission-heavy projects.

Greening the portfolio

The second means by which ECAs can be used to support the fight against climate change is to incentivise green projects and projects in transition, thus greening up their portfolio.

Indeed, there is a need to guide exporters toward this transition by providing them with tools to measure and improve their performance. Advising them about shared and recognised standards is an essential step:

• GHG protocol to measure their emission

• the EU taxonomy on sustainable activities to assess the sustainability of project

• life cycle analysis calculation tool, etc.

With this type of tool, financial actors will be able to guide exporters and enterprises toward more sustainable practices.

To incentivise companies to export greener projects, financial actors must provide adapted financing to meet their needs.

Banks are getting involved increasingly in the green loan and debt market to finance green projects, even if these are riskier. In the same sense, some ECAs have improved some of their products in a way to better support sustainable projects by facilitating access to financing or to insurance coverage.

Indeed, sustainable projects, including those involving renewable energies, need special features such as a longer reimbursement period.

This climate bonus is currently provided to French exporters.

It is important to note that the Adherents to the OECD Arrangement have the responsibility to undertake the National Determined Contributions (NDC) of decarbonisation of Parties to the United Nations Framework Convention on Climate Change. Still, there is a need to better take into consideration the fight against climate change in the ongoing process of modernisation of the OECD Arrangement, which is recognised already.

This is why some ideas, such as export emissions, carbon tax at frontiers, or the review of trade export regulation considering NDCs, will certainly be discussed during the next COP26 meeting.

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The post How investing in green projects is the way forward for ECAs appeared first on Trade Finance Global.

TFG heard from Bpifrance (formerly under the CoFace umbrella) around the current market and appetite for lending to French exporters, discussing market opportunities and France’s largest trading partners, as well as the biggest worries for SME exporters in France and how the ECA is supporting them.

Featuring: Maëlia Dufour, Director – International Relations, Business Development, Rating

Host: Deepesh Patel, Editor, Trade Finance Global

Deepesh Patel: Maëlia, thank you very much for joining us on Trade Finance Talks TV. A pleasure to have you on the show. Could you give us a brief introduction?

Maëlia Dufour: I’m Maëlia Dufour, from France and my role at Bpifrance, is Director of International Relations, Business Development and Rating in the ECA division.

Bpifrance is a public investment bank, with 3000 employees, that has three subsidiaries: one that provides financing to companies, the second one that provides investment, and the other one is the ECA; the French Export Credit Agency.

The Export Credit Agency was transferred from Coface on the 1st January 2017, creating what is now a subsidiary within Bpifrance. 

From Coface to Bpifrance

DP: Why did the ECA move from Coface to Bpifrance?

MD: Good question. This was a government decision – they wanted to create a ‘one-stop shop’ for companies, particularly SMEs, in order to find access to finance, investment and credit insurance in one single place.

Moreover, within Bpifrance there is also an export finance department which can provide up to 25 million euros of export financing on a single basis, and up to 75 million euros if it is co-funded with another bank. With this structure Bpifrance can effectively provide both export financing from the bank and credit insurance from the ECA. 

The second reason for transferring from Coface was to lean on the tremendous regional network of Bpifrance within France; a network of many advisors in 48 regional offices, with specialists that can help SMEs to export or to increase their exports. Bpifrance also has international area managers in Singapore, Dubai, Kenya, New York and Germany, who are very useful for assisting SMEs working in other markets, particularly in the business around buyers overseas, relationships and contracts.

Interview: TFG spoke to Vinco David, Secretary General of the Berne Union on Export Credit and Investment Insurance appetite for 2020

Exporting from France: Team France Export

DP: When it comes to trade promotion, what are the biggest issues and challenges facing French companies looking to export or grow their current export operations?

MD: Bpifrance is geared towards promoting trade exports for SMEs. Our experts help advise on the different products available for helping SMEs finance exports. The ‘Team France Export’, along with Business France, helps companies navigate some of the challenges around exporting, as well as developing connections with potential overseas buyers.

We’ve noticed an increase in demand from SMEs by around 30% since 2017 – something must be working!

French ECA Landscape

DP: What does the ECA landscape look like currently in France, given the current geopolitical and macroeconomic situation?

MD: Compliance is certainly at the front of mind for most businesses right now, as well as sanctions.

As an example, Russia was one of our biggest exposure in amounts a few years ago, but this has fallen due to sanctions restrictions. Russia concluded numerous contracts with French companies, particularly in the space, infrastructure, oil and gas sectors. We also see similar issues now with Brazil.

In terms of opportunities, we have a lot of exposure in the Middle East and Asia, and we’re increasingly providing export finance into Africa lots of opportunities here!

Navigating 2020 for French Exporters

DP: What advice would you recommend for French SMEs looking to navigate the rest of 2020, and how can Bpifrance help with that?

MD: We have an inhouse team of economists at Bpifrance to advise us on country risks. We also have a strong network with French embassies under the Ministry of Finance. We work closely with these networks to help our SMEs in terms of providing financing arrangements for particular projects in different jurisdictions.

On the trade promotion front, we also have many successful stories and case studies which we promote to share learnings as well as opportunities. One example, Fonroche, a French SME that provides street lighting. It recently concluded a large lighting contract which was a roaring success, and partly thanks to some of the products from the Bpifrance team.

Bpifrance also facilitates face to face meetings, networking and opportunities amongst our regional offices to help SMEs across the region. 

DP: Maelia, thank you very much for giving us an oversight on the French market. Look forward to hearing from you soon!

MD: Thank you very much. It was a pleasure!

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