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Sustainability - a key part of our due diligence work

By Kamil Zabielski, Head of Sustainability at GIEK

Sustainability, including environmental, social and financial aspects, is a key part of GIEK’s due diligence work. GIEK has been an active contributor to ECA guidelines and the regulatory framework that promotes sustainable business. GIEK’s work on sustainability is aimed both at reducing our clients’ business risks, as well as contributing to Norway’s work on the Agenda 2030 and the Sustainable Development Goals (SDGs).

Agenda 2030 is a global roadmap for eradicating extreme poverty through sustainable development and for promoting good governance and peaceful societies by 2030. Agenda 2030 defines 17 Sustainable Development Goals, each with their own subset of targets, as a guide for nations’ efforts to eradicate extreme poverty while protecting planetary boundaries and promoting prosperity, peace and justice.

Collaboration is crucial

Agenda 2030 is clear on the fact that the Goals can only be met through the collaborative efforts of both public sector, private sector, and other relevant stakeholders. By enabling an environment for the private sector, such as creating dedicated financial instruments for projects that actively contribute to the SDGs, governments can foster sustainable, responsible growth. In an environment where green finance is growing rapidly, SDG friendly finance is quickly becoming its own niche, and offers great opportunities for both new and mature businesses looking for alternative financial opportunities.

Preferential financing terms for SDG friendly projects

It is in this new financial environment that GIEK is looking for ways to promote business opportunities that contribute to the SDGs. We are exploring ways in which we can incentivise projects that actively contribute to the SDGs. In order to be able to provide preferential terms, a system for evaluating projects against the SDGs needed to be developed.

GIEK has been working on developing a methodology, with feedback from like-minded ECAs, that enables us to better evaluate a project’s contribution to the SDGs. In the context of providing financing to customers, being able to document a clear and transparent SDG-assessment is essential to ensure a level playing field for all our customers, while remaining accountable to our owners.

GIEK has developed a SDG assessment tool

The SDG tool is intended to support financial institutions in evaluating a project’s or a transaction’s contribution to the SDGs. The methodology is a rather simple approach that guides the user through the goals and targets, offering some guidance and benchmarking where appropriate. The SDG evaluation does not replace an ESG assessment and has a prerequisite that regular due diligence against applicable standards has been conducted.  A project’s or a transaction’s contribution to each of the SDGs is reflected in a score, ranging from -1 to +2, where -1 indicates the residual negative effect post-mitigation efforts on a particular SDG, and +2 indicates that the project has a particularly positive effect on the specific SDG. The methodology allows the assessor to indicate projects as having both negative and positive effects on the same SDG. GIEK has developed guidance in order to support that the targets and their scoring are understood by the assessor. This would in turn contribute to a more consistent result independently of the financial institution. GIEK has been using this tool for the past year in all relevant new credit cases.

The intention is that the individual SDG evaluations gives the assessor the basis for making an overall SDG-assessment of the project or transaction. A project or transaction can be very positive, positive or neutral. A project or transaction that has significant negative effect on one or more of the SDGs should not be assessed for its contribution to the SDGs.

The results of this evaluation are displayed in a “rose”, showing in a simple and clear manner how the project affects the SDGs. In advance of providing a guarantee for a project, it allows decision-making bodies, such as a credit committee or a board, to quickly understand the sustainability aspects of a transaction, and make better informed decisions. 

When using the SDG-tool earlier in the project life-cycle, it may support the ESG practitioner to have a dialogue with the project owner on how to make the project more “SDG positive”. The tool may also help identify at an early stage where a project may have significant negative effect, and therefore need improvement.

A starting point for the creation of a common framework?

GIEK aims at making the SDG assessment tool available to peers not too long from now. We hope to encourage other financial institutions to make use of the tool. GIEK hopes that this tool can be the starting point for the creation of a common framework for the financing of SDG-positive projects for Export Credit Agencies, contribute to a level playing field, as well as increasing ECA support for SDG-positive projects and transactions.

This article has been published in the Berne Union Yearbook 2020.