Environmental and social impact considerations are an important aspect of NZEC’s assessment of export credit transactions.
NZEC is a Participant to the OECD Arrangement on Officially Supported Export Credits which agrees to end export credit support for unabated coal-fired power plants.
Specifically, the ban applies to officially supported export credits and tied aid for:
- new coal‑fired power plants without operational carbon capture, utilisation and storage (CCUS) facilities; and
- existing coal-fired power plants, unless the purpose of the equipment supplied is pollution or CO2 abatement and such equipment does not extend the useful lifetime or capacity of the plant, or unless it is for retrofitting to install CCUS.
The ban came into effect on 1 November 2021.
NZEC also adheres to the OECD’s Recommendation on Common Approaches for Officially Supported Export Credits and Environmental and Social Due Diligence (the “Common Approaches”) which describes measures to address the potential environmental and social impacts of projects for which export credit support is requested. See: http://www.oecd.org/trade/topics/export-credits/environmental-and-social-due-dilligence/
The general principles and processes of our environmental and social due diligence are summarised below.
Screening and classification
All applications for officially supported export credits are screened using the information provided in the NZEC Application Form. Where initial screening identifies any potential environmental or social impacts then an applicant must complete NZEC’s Environmental and Social Impacts Questionnaire (see attachment below).
NZEC then classifies each new project as a Category A, B or C, depending on the significance of its potential environmental and/or social impacts. This process considers:
- the potential environmental and social (including human rights) impacts associated with the transaction;
- the exporter’s role in the transaction, including the ability and authority to directly manage the environmental and social impact of a project;
- New Zealand’s obligations under international agreements; and
- relevant international (including the International Finance Corporation – IFC), industry and host country standards.
Transactions requiring risk evaluation
NZEC will undertake an environmental and social risk evaluation for transactions involving:
- all projects in or near sensitive areas;
- all projects and existing operations where the screening has identified that there is a high likelihood of severe project-related human rights impacts occurring; and
- all Category A or B classified projects where NZEC’s guaranteed amount (if approved) would be above NZD 20 million.
If potential environmental and social impacts are identified in transactions where NZEC’s exposure is less than NZ$ 20 million; is for an application for a sovereign bond guarantee; or the repayment term is less than 2 years, then these may be further evaluated on a case-by-case basis.
NZEC requires applicants to provide sufficient information to enable NZEC to undertake a reasonable evaluation of environmental and social risks and corresponding mitigation measures. The documentation expected from a client depends on the type of support requested, the nature of the exports or project to be undertaken, and the role of the New Zealand exporter / applicant.
For example, NZEC will require an Environmental and Social Impact Assessment (ESIA) and/or Human Rights Impacts Assessment (HRIA) to be undertaken by an applicant for all:
- projects in or near sensitive areas;
- projects and existing operations where the screening has identified that there is a high likelihood of severe project-related human rights impacts occurring; and
- Category A projects where NZEC’s guaranteed amount (if approved) would be above NZD 20 million.
A Category B project generally requires a narrower scope of assessment, and it is the discretion of NZEC whether to seek an ESIA and/or project-related assessment reports, planning documents and technical reviews, environmental and social studies, or other relevant information.
If NZEC’s screening or information gathering process highlights risks of project-related human rights impacts occurring then NZEC is to ensure that these risks are specifically identified, assessed and addressed. The UN Guiding Principles on Business and Human Rights firmly establish the corporate responsibility to respect human rights as a standard of expected conduct.
If the review reveals a risk of negative environmental impact, applicants may be requested to provide additional information.
NZEC assesses the findings of the risk evaluation process, and decides whether to support or decline the transaction.
NZEC may decline an application if the necessary information on and analysis of environmental and social consequences are not received, or if the review has revealed strong negative environmental and/or social impact in the transaction which do not satisfy relevant benchmarks.
A decision to support the transaction may be conditional on measures to prevent, minimise, mitigate or remedy potential adverse environmental and social impacts. NZEC will monitor compliance with these conditions before and / or during the course of the transaction.
A decision to support the application may be conditional on measures to prevent, minimise, mitigate or remedy potential adverse environmental and social impacts.
For category A projects, NZEC will (within any constraints of business confidentiality):
- publicly disclose project information (including project name, location, description of project) and
- require that environmental and social impact information (e.g. ESIA report, or summary thereof) is made publicly available (either via NZEC or the Applicant, buyer, project sponsor),
at least 30 calendar days before a final commitment to grant official support. The above information will made available on, or with links from, the NZEC website.
The purpose of this ex ante disclosure is to allow NZEC to receive public comments for its consideration (including possible decline of support) during the publication period.