Guidance

Task Force on Climate-related Financial Disclosures: UK Export Finance direction statement

Published 19 March 2021

Among the many impacts of climate change, financial risks are significant and largely underestimated. In recognition of this risk, as well as to extend its global leadership in green finance ahead of hosting COP26 in November 2021, the UK will become the first country in the world to make TCFD-aligned disclosures mandatory across the economy by 2025.

Implementation of the TCFD recommendations can help ensure organisations better manage their exposure to climate change and account for climate-related financial risks and opportunities when making investment, credit and underwriting decisions. A TCFD-compliant organisation must embed climate change-related financial considerations across their governance, strategy, risk management, and targets and metrics.

As a government department responsible for managing taxpayer money, UK Export Finance (UKEF) will make its first climate-related disclosure in its 2020/2021 Annual Report, in line with the commitment it made in the government’s 2019 Green Finance Strategy. UKEF’s first disclosure will detail the steps it has taken so far to align itself with TCFD’s four key pillars and outline how it will enhance subsequent disclosures to improve its support for UK exports.

This will be a major step towards understanding the climate change financial risks and opportunities UKEF faces, with a view to ultimately minimising the former and maximising the latter. In advance of its first disclosure, this Direction Statement gives a preliminary insight into UKEF’s progress to date and its areas of focus for the years ahead:

1. Governance

1.1 Progress in 2020

  • A TCFD Project Board, formed of representatives from across UKEF and reporting directly to UKEF’s CEO, was established to initiate TCFD implementation
  • A new Strategy, Policy and Climate Change directorate was established to lead UKEF’s climate change strategy
  • The head of the directorate is a UKEF Executive Committee member
  • Within the new directorate, a Head of Policy and Climate Change was appointed
  • The Chair of Export Guarantees Advisory Board (which advises UKEF on matters including Climate and ESHR) was appointed ex-officio member of the UKEF board
  • Dr Ben Caldecott and Vanessa Havard-Williams were appointed to the Export Guarantees Advisory Council, further adding to the Council’s climate change credentials

1.2 Focus areas (2021 onwards)

  • Publish Board and Minister-approved UKEF Climate Change Strategy:

    – formalise roles and responsibilities

    – introduce targets and metrics for tracking and measuring the Strategy’s progress

  • Appoint a dedicated Head of Climate Change

2. Strategy

2.1 Progress in 2020

  • UKEF became a formal supporter of TCFD
  • UKEF appointed two new Export Finance Managers whose remit is exclusively on renewable energy and clean tech
  • UKEF colleagues were engaged to understand their views on climate change and assess their training needs
  • UKEF provided key contributions in the development of the UK government’s decision to no longer provide any new direct financial or promotional support for the fossil fuel energy sector overseas, other than in exceptional circumstances
  • Developed a portfolio risk and opportunity review, which will influence UKEF’s marketing activities

2.2 Focus areas (2021 onwards)

  • Identify climate-related risks and opportunities that are material to UKEF’s business and financial planning over the short, medium, and long term
  • Develop a Climate Change Strategy:

    – agree an overarching vision

    – establish underlying key strategic pillars

    – implement associated governance, learning & development and stakeholder engagement measures

  • Map internal policies needed to deliver the Climate Change Strategy
  • Use the portfolio risk and opportunity review to influence UKEF’s marketing activities
  • Provide an overview of how UKEF is considering climate change in its decision-making processes

3. Risk management

3.1 Progress in 2020

  • Introduced procedures for the consideration of climate change into the due diligence processes for all cases
  • Facilitated learning about climate change through external training. A third of UKEF employees completed Imperial College London’s Climate Change Financial Risks and Opportunities course

3.2 Focus areas (2021 onwards)

  • Further embed procedures for the identification, assessment and management of the impact of climate change
  • Integration of these procedures into UKEF risk management including as part of credit risk assessments
  • Conduct stress testing to account for the impact of long-term climate scenarios on UKEF’s portfolio

4. Metrics and targets

4.1 Progress in 2020

  • UKEF received support in the Spring Budget which enabled it to launch a £2 billion clean growth direct lending facility
  • UKEF aligned its definition of clean growth with the Green Bond Principles to support borrowers in transitioning their business model towards greater environmental sustainability
  • UKEF also provided £392 million of support to renewable energy projects in financial year 2019-20

4.2 Focus areas (2021 onwards)

  • Develop GHG emissions baseline for UKEF’s portfolio (buyers’/exporters’ emissions) and consider options for decarbonisation
  • Increase the amount of support UKEF provides to renewable energy and clean growth projects