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Export Credit Guarantees

Finnvera seeks to safeguard the competitiveness of Finnish enterprises in export markets by offering them export and project financing at rates comparable to those offered by our main commercial rivals to their export companies. Our clientele comprises both companies and domestic and international banks and financial institutions.

Risks to be covered

For granting export credit guarantees, countries are classified into eight categories. The classification is based on methods used by export credit agencies and on country risk assessment. Various factors affect the determination of the country category: assessment of the country's ability to manage its external liabilities; expectations of the future trend of the country's economy; and political stability and the legislative framework.

Since there may be considerable differences between individual countries, even within the same category, risk-taking is based on Finnvera’s country-specific guarantee policy.

We monitor the economic and political situations of countries and make adjustments to country categories depending on the changes that have occurred. The category of each country is checked at least once a year.

Political risks to be covered

Political risks are related either to the country of a foreign buyer or borrower, or to a third country which can cause the exporter, investor or financier to incur a credit loss. Political risks include restrictions on transfer of the credit currency, rescheduling of debts, expropriation, and war or insurrection.

Sovereign risk is caused by an entity that represents the full faith and credit of State. In most cases this is the Ministry of Finance or the Central Bank.

When Finnvera covers only the political risks involved, the commercial risks associated with the buyer, the borrower or the guarantor are not covered.

Political risks are assessed by continuously following the creditworthiness of the countries with political risk. The term political risk refers to all factors or events which influence the country's economy, internal stability and international relations.

Political risk may materialise as the consequence of a long course of events, or may result from internal or external economic and political shocks. Political risks are assessed according to the following criteria:

Commercial risks to be covered

Commercial risks arise from foreign banks, companies or project companies. Typical commercial risks include the buyer's, borrower's or guarantor's insolvency or unwillingness to pay its debt.

Factors considered assessing of the commercial risks of the transaction include:

  • export transaction/project
  • line of business
  • financing
  • risk-sharing/coverages
  • securities
  • environmental aspects
  • buyer's country
  • other aspects involved, if any

Further information about commercial risks

  • Corporate/buyer risk
  • Project risk
  • Bank risk

  • Bank risk

    Factors considered in assessing bank risks:

    • capital adequacy, asset quality, profitability and liquidity are on an acceptable level in relation to the operating environment in the country
    • quality of the management
    • support from the State or owners
    • Finnvera's maximum exposure is usually limited to 10% of the bank's equity
  • Project risk

    Finnvera's key criteria in assessing the commercial risks typically associated with projects are:

    • A separate or special purpose company (SPC) is set up for the project. Repayment of this SPC debt is based primarily on cash flows generated by the investment in the future.
    • The project must be profitable and its long-term cash-flow indications have to meet the debt servicing costs under all conditions.
    • The project must have a security package that can be shared by Finnvera with other lenders on the pro rata and pari passu basis.
    • The equity portion of the project should be at least 30%.
    • Finnvera's guarantee can provide coverage for a maximum of 50% of all the debt associated with the project.
    • Other export credit agencies and credit institutions should agree to share the risks associated with the project.
    • The maximum investment amount to be covered by Finnvera's share, provided that the risk-sharing principle is in place, is EUR 100 million.
    • The minimum investment covered is usually EUR 10 million. As a prerequisite Finnvera expects that a feasibility study has been conducted for projects of this magnitude.
    • Finnvera can also require additional guarantees from the project's sponsor.

    In order to be able fully to evaluate the commercial viability of investment projects, Finnvera needs the information mentioned i a checklist. This information considerably facilitates the process of handling the application

  • Corporate/buyer risk

    Factors considered in assessing corporate credit risk include:

    • management quality
    • business operations
    • profitability
    • financial position
    • sufficient equity
    • acceptable equity ratio
    • good profitability (operating profit/net profit)
    • positive credit information
    • Finnvera's share of the risk at most 20% of the turnover

Country policy

The country policy described is indicative only. Finnvera reserves the right to set additional conditions regarding any particular country, buyer, or bank as well as change the percentage of cover for a transaction. Finnvera assumes no liability to issue a guarantee to any specific transaction. We recommend that you contact our country policy and export credit guarantee advisers prior to making an offer for financing a transaction with intended guarantee support from Finnvera.

Finnvera's country policy determines

  • Finnvera's risk-taking in the country
  • securities and payment condition requirements
  • the acceptable maximum risk period

Finnvera classifies countries into seven categories. A country's category for short-term and medium/long-term guarantees may be different.

  • Country classification is determined by
    • an assessment of the country's ability to meet its external liabilities
    • expectations of the country's economic development
    • political stability
    • the legislative environment
  • Country categories

    0. excellent credit quality

    1. very good credit quality

    2. good credit quality

    3. adequate credit quality

    4. decreased credit quality

    5. questionable credit quality

    6. poor credit quality

    7. very poor credit quality

  • Country classification influences
    • the level of the guarantee premium
    • the security requirements
    • Finnvera's country policy

International co-operation

A number of international rules and agreements regulate export credit guarantee activities. The purpose of the rules is to make sure that countries do not compete by means of officially supported export credit terms. Close international co-operation is of vital importance to Finnvera in order to adhere to and to develop the regulatory framework.
International export credit co-operation between nations is carried out in the OECD and the EU. The OECD Arrangement on Officially Supported Export Credits is the most important international agreement regulating export credit operations. The EU rules strive to create a level playing field for all exporters in the EU countries.

The Berne Union is the international professional association of export credit agencies, which provides a forum for extensive exchange of information and promotes sound principles of export credit and investment guarantee activities.

OECD

The OECD groups 30 member countries sharing a commitment to democratic government and the market economy.

With active relationships with some 70 other countries, NGOs and civil society, it has a global reach. Best known for its publications and its statistics, its work covers economic and social issues from macroeconomics, to trade, education, development and science and innovation.

  • Sustainable lending to the low-income countries

    The World Bank and International Monetary Fund are pursuing policies to help low income countries to achieve their Millennium Development Goals (MDGs) without creating future debt problems. The aim is to prevent renewed indebtedness of these countries after the debt forgiveness and debt reduction that have been implemented in the last few years.

    The member countries of the OECD Export Credit Group are the main financiers of the international financial institutions. The creditor countries have been invited to carry their responsibility to ensure that the indebtedness remains at a sustainable level. Therefore the OECD has agreed Principles and Guidelines on how to promote sustainable lending practises in the provision of official export credits to low-income countries.

    In practise this means that Finnvera and other export credit agencies of the OECD countries need to take into account the restrictions that IMF and IBRD set as regards new debt to public sector borrowers. Many low income countries can only exceptionally utilize export credits with market terms for their public sector projects.

    Finnvera’s country risk advisers will provide further information on Finnvera’s risk-taking in export transactions to the low-income countries.

    Country-classification-and-map

    The Principles and Guidelines to promote sustainable lending as well as the up-to-date list of low-income countries is available at the OECD website.

  • Anti-Bribery Measures

    The OECD Working Party on Export Credits and Credit Guarantees adopted an Action Statement on Bribery and Officially Supported Export Credits in December 2000. A new OECD Recommendation OECD Council Recommendation on Bribery and Officially Supported Export Credits has been adopted by the OECD Council in December 2006 to strengthen the measures for combating bribery in international business transactions.

    As the official Finnish Export Credit Agency (ECA) Finnvera is committed to implement the measures required by the Recommendation. Finnvera requires the exporter and the lender as beneficiary of the guarantee to sign an anti-bribery declaration. The exporter shall also commit to refund Finnvera the possible indemnification if bribery has been proven.

    Finnvera requires anti-bribery declarations to be signed also in connection with short term export transactions.

    Main requirements of the Recommendation

    • The Official ECA shall
      (i) inform the exporter and the lender about the legal consequences of bribery in international business transactions under its national legal system (Chapter 16, sections 13, 14 and 20 of the Finnish Penal Code), and
      (ii)encourage the exporter and the lender to develop, apply and document appropriate anti-bribery management control systems.
    • If there is credible evidence that bribery was involved in the award of the export contract, the ECA shall refuse credit, cover and other support.
    • If there is credible evidence that bribery was involved, the ECA shall inform the relevant national authorities promptly.
    • If bribery has been proven after credit, cover or other support has been approved, the ECA shall take appropriate actions, such as denial of indemnification, or refund of sums provided.
    • The exporter and the lender shall sign an anti-bribery declaration stating that neither they, nor anyone acting on their behalf, have been engaged or will engage in bribery in the export transaction.
    • The exporter and the lender shall confirm that they have not been listed on the publicly available debarment lists of the following international financial institutions: World Bank Group, African Development Bank, Asian Development Bank, European Bank for Reconstruction and Development, and Inter-American Development Bank.

    The following debarments lists of World Bank Group and European Bank for Reconstruction and Development are publicly available.

    Attachments:
    OECD Council Recommendation 
    Anti-Bribery Declaration of the Exporter 
    Anti-Bribery Declaration of the Guarantee Holder

  • MNE Guidelines

    Finnvera wishes to call the OECD Guidelines for Multinational Enterprises to the attention of guarantee applicants.

    The guidelines provide principles and standards for responsible business conduct. The main themes included in the guidelines are human rights, sustainable development, supply chain responsibility, disclosure of information, employment and industrial relations, the environment, anti-bribery efforts, consumer interests, science and technology, competition, and taxation. The guidelines have been drafted with multinational enterprises in mind, but they are suitable recommendations for all types of companies.

    The OECD National Contact Point in each country promotes the guidelines and acts as a discussion forum relating to the issues in the guidelines.

    Further information about the OECD National Contact Point in Finland:

    OECD National Contact Points (NCPs) in all countries:

  • Project finance

    According to the Project Finance Agreement, the repayment schedule of a genuine project (the project cash flow is adequate to cover the repayment of the loan and the project assets are sufficient collateral) can be more flexible (can reflect the project cash flows) than in a normal export credit transaction.

    The maximum repayment period of a project finance transaction is 14 years with a maximum average weighted life (AWL) of 7,25 years (except for transactions in High-Income OECD countries).

    As regards High-Income OECD-countries, project finance flexibilities can be applied only when combined ECA support is less than 50% of the loan syndication and ECA support is in pari passu with other financiers. The maximum repayment period is 14 years with a maximum average weighted life (AWL) of 7,25 years except when the ECA-supported share is over 35% (and less than 50%) of the loan syndication, the maximum repayment period is 10 years and  average weighted life 5,25 years.

    The repayment profile of a project finance transaction must fulfil the following conditions:

    • The first repayment of principal must be made no later than 2 years from the starting point of credit.
    • The first repayment of principal must be for not les than 2% of the total principal sum.
    • The first repayment of interest must be made within 6 months from the starting point of credit; after that the interest can be repaid in annual instalments.
    • No single or series of repayments of principal within any 6 month period shall be more than 25% of the total principal.
  • Arrangement on Export Credits

    The major Western industrialised nations adhere to the Arrangement on Officially Supported Export Credits when they provide officially supported export credits. Finnvera plc is an official Export Credit Agency, ECA, and thus all credits guaranteed by Finnvera must adhere to rules, laid down in the OECD Arrangement on Export Credits.

    The EU has carried into effect the rules of the OECD Arrangement on Export Credits as a decision binding on all EU Member states.

    Participating countries

    The parties to the OECD Arrangement on Officially Supported Export Credits are Australia, South Korea, Canada, Japan, Norway, Switzerland, New Zealand, USA and the EU.

    What does the OECD Arrangement on Export Credits deal

    The OECD Arrangement on Export Credits applies to all officially supported export credits having a repayment period of two years or more. Military equipment, agricultural goods and untied development aid are not covered by the agreement. There are separate rules for ships, aircrafts, rail infrastructure, power plants, renewable energy, climate change mitigation and adaptation and water projects. The main rules of the arrangement define

    • the maximum credit periods
    • the minimum interest rates
    • the cash payment requirements
    • the repayment conditions and
    • the minimum premium rates

    Minimum interest rate requirement

    The minimum interest rate requirement applies when the credit receives official financing support in one way or another. In Finland this means interest equalisation or export credits, which are administrated by Finnish Export Credit Ltd. If the credit is granted on market terms and the only form of official support is the Export Credit Guarantee issued by Finnvera, the OECD Arrangement on Export Credits does not regulate the interest rate.

    Maximum credit period

    • group I, "relatively rich countries", usually 5 years (8.5 years exceptionally in some cases)
    • group II, "relatively poor countries", 10 years
    • project finance; 14 years (when the project is in a high-income OECD-country, the official export credit support comprises less than 50% of the loan syndication; this rule will be valid until the end of 2015)
    • renewable energies and water projects, 18 years
    • climate change mitigation or adaptation, 15 or 18 years

    Interest rate

    • market rate of interest or
    • CIRR (Commercial Interest Reference Rate), if interest equalisation is involved

    Cash payment

    • at least 15% of the contract price

    Repayment

    • in equal instalments not less frequently than every six months from the starting point of credit (normally the delivery of the goods)

    You can print the Arrangement on Export Credits, premium rules and information on OECD's country classification from OECD's web pages.

  • Environment

    Finnvera follows the OECD Recommendation on Common Approaches for Officially Supported Export Credits and Environmental and Social Due  Diligence. You may find the link below. On the basis of the said document, Finnvera has its own Environmental Policy of which you will find information on the menu under “Policy for reviewing environmental and social impacts”.

    Links:

European Union

The European Union Directive aimed at harmonising medium/long-term guarantee activities came into force in June 1998. The Directive strives to provide equal guarantee terms throughout the EU and thus equal competition possibilities for export products, where the related finance terms do not constitute a competitive edge. The Directive encompasses rules for guarantee conditions, guarantee premiums, country policy and notification procedures. As to guarantee premiums and country policy, the Directive observes the OECD's Premium Agreement.

An updated EU communication based on the EU competition rules concerning short-term (risk period less than 2 years) export credit guarantee activities came into force in the beginning of year 2013. Previous version of the communication has been effective since 1997. The communication denies official export credit agencies from cover marketable risks, which are risks that private insurance companies are willing to cover. According to the Communication, Finnvera cannot grant guarantees with a risk period less than 2 years (manufacturing period + repayment period) to the following markets:

  • EU countries (Austria, Bulgaria, Belgium, Croatia, Cyprus, Czech Republic, Denmark, Estonia, France, Germany, Greece, Hungary, Italy, Ireland, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, United Kingdom)
  • Australia, Canada, Iceland, Japan, New Zealand, Norway, Switzerland, USA

Exceptions to EU communication's principles:

In the case of these so-called “marketable risk countries”, the EU rules on transactions with a risk period of under two years only apply to conventional credit insurance for covering buyer risks, not guarantees for bank risks. If the payment method is a letter of credit and the guarantee used is a Letter of Credit Guarantee or some other guarantee where the risk applies to a bank, Finnvera may, under the risk-sharing principle, consider granting a guarantee for said countries.

Special permission to insure short-term exports

On 15 December 2015 the European Commission granted Finnvera permission to insure short-term exports to the above-mentioned countries in the following cases, where the Commission sees a market failure:

  1. when the applicant is an SME¹ with a total annual export turnover of at most two million euros;OR
  2. when credit insurance is sought for a single export transaction which has a risk period of at least 181 days and at most two years.

The permission is valid until the end of 2020. The permission does not concern Greece.

All export companies operating in Finland can apply for Finnvera’s credit insurance. Finnvera assesses each buyer’s creditworthiness according to its normal risk appraisal practice. Insurance can only be considered when the buyer is financially sound and where the exporter meets the above condition 1 OR where the transaction meets the above condition 2. Another precondition for an insurance is that a private credit insurer has been unable to offer sufficient insurance cover for the transaction. Finnvera always requests the buyer’s credit history. The guarantee application is turned down if, for instance, the buyer has had considerable payment delays or if the buyer’s financial indicators are poor.

Exporters primarily seek insurance cover for their export projects from credit insurers operating in Finland.

Contact details for credit insurers:

Atradius Credit Insurance N.V.
www.atradius.fi 
credit insurance: tel. (09) 6811 2422
asiakaspalvelu.fi(at)atradius.com

COFACE
www.coface.com
Phone: +358 (0)50 596 7431

Euler Hermes Luottovakuutus 
www.eulerhermes.fi 
credit insurance: tel. 010 850 8500
info.fi(at)eulerhermes.com

Tryg Garanti 
www.tryggaranti.fi 
Phone: +358 (0)20 7805 790 
post(at)tryggaranti.fi

If a credit insurer is unable to cover the export transaction, the exporter may apply for insurance cover from Finnvera. Before the guarantee application is processed, the exporter must notify Finnvera that the exporter has applied for insurance from private insurers. On the application form, the exporter must provide information showing that the transaction meets the conditions for the temporary permission. If insurance cover is sought under condition 1, the exporter must be an SME, as defined by the EU, and provide information on its annual export turnover (which may not exceed two million euros). When condition 2 is applied, the exporter must specify the nature of the transaction. If necessary, Finnvera’s representative contacts the applicant and asks for additional information.

Applications for export credit guarantees are processed at the Large Corporates Unit of Finnvera in Helsinki. Please send the application to luottovakuutus (at) finnvera.fi or use the Online Service.

Application forms can be found on following product pages

¹ As defined by the EU:http://ec.europa.eu/growth/smes/business-friendly-environment/sme-definition/index_en.htm

Berne Union

Finnvera is a member of the Berne Union (International Union of Credit and Investment Insurers). Berne Union is the international association for export credit and investment insurance worldwide, with over 50 members from over 40 countries.

BU aims at developing export credit and investment insurance activities mainly based on extensive professional exchange of information among its members.

The BU members have committed to guiding principles reflecting their way to conduct their business and pursue the purpose of the BU. More information about the Berne Union and the Guiding principles can be found from the association’s website.

www.berneunion.org.uk

Co-operation agreements

Co-operation between guarantee agencies becomes significant in situations where export companies have production operations in more than one country and when an export project includes deliveries from exporters in different countries.

Finnvera has concluded co-operation agreements with various guarantee agencies. These agreements form the basis for co-operation in individual projects, but they are not a necessary condition for co-operation - Finnvera may be involved in mutual projects although such a bilateral agreement does not exist.

The simplest method for involvement in projects including exports from many countries is to include the foreign deliveries in the guarantee issued by Finnvera.

Joint guarantee and reinsurance arrangements

Joint guarantee and reinsurance arrangements are practical in large-scale projects or projects involving risky markets.

In a joint guarantee, each agency covers its own national share according to their guarantee terms, and co-operation takes place mainly in the form of exchanging information.

In a reinsurance arrangement, the principal insurer is the guarantee agency in the country from where the largest share of exported share is supplied. The main insurer creates a guarantee contract for the project as a whole, and then draws up a reinsurance contract with the guarantee agency in the subcontractor's country. The subcontractor's guarantee agency usually accepts the guarantee terms of the main insurer to a large extent.

Finnvera has co-operation or reinsurance agreements with the following organisations:

Finnish interest

Export credit guarantees and financing of export credits can be granted for transactions that fulfil a requirement of Finnish interest. Finnish interest is demonstrated if the Finnish content is significant. Finnish content is considered significant when it is at least 27 % of the export transaction’s value (including local cost) or 33 % or more of the export credit.

In case the transaction based Finnish content requirement is not fulfilled, exporters need to demonstrate the Finnish interest otherwise e.g.

  • The average Finnish content of the export transactions concluded in the previous year or the average Finnish content of the companys’s production is 27 % or more.
  • The exporter is a SME striving for growth and internationalization.
  • The export transaction is based on deliveries a from a number of countries and there is no clear prime exporter.
  • A subsidiary of a Finnish company cannot get export credit guarantees from the country where it is located.
  • The transaction is based on risk sharing.
  • A transaction containing low Finnish interest may boost further sales with a higher Finnish content (customer relationship).
  • The activities of the exporter as a whole bring considerable economic benefits to Finland.

Policy for reviewing the environmental and social impacts of projects

When financing exports, Finnvera considers environmental and social impacts as part of the overall risk assessment of the projects financed.

In November 2016, Finnvera’s Export Financing updated its policy concerning the review of projects.
Annexes:

OECD Common Approaches

Principles

The following principles guide Finnvera’s export financing in environmental and social issues:

  • Environmental impacts as part of the overall risk assessment of projectsWhen export credit guarantees are granted and their terms and conditions are confirmed, attention is paid, among other things, to environmental and social impacts as part of the overall risk assessment of the project.
  • Cooperation among export credit agencies in environmental and social issuesFinnvera contributes actively to discussions between export credit agencies (ECAs) and participates in working groups seeking common approaches to environmental and social issues. Finnvera supports international efforts to create common rules for export credit agencies so that exporters from all countries would be ensured a level playing field in this respect.Finnvera adheres to the Recommendation of the Council on Common Approaches for Officially Supported Export Credits and Environmental and Social Due Diligence adopted by the Organisation for Economic Co-operation and Development (OECD).
  • Other International agreements and frameworksThe OECD Recommendation is also grounded in the following international agreements and frameworks: the UN Guiding Principles on Business and Human Rights; the ILO Declaration on Fundamental Principles and Rights at Work; the UN Framework Convention on Climate Change; and the OECD Guidelines for Multinational Enterprises.
  • Continuous improvementFinnvera’s policy for reviewing the environmental and social impacts of projects is under constant development. International competition factors, the development of environmental and social issues pertaining to export financing, and Finnvera’s own experiences are taken into account in planning. Finnvera trains its personnel to identify environmental and social aspects and to assess the related risks. Relevant information and lessons from individual projects are exchanged among experts within Finnvera.

Attachments: OECD Common Approaches

  • International trends

    On 7 April 2016, the Council of the Organisation for Economic Co-operation and Development (OECD) adopted the revised Recommendation on Common Approaches for Officially Supported Export Credits and Environmental and Social Due Diligence (the ”Common Approaches”).

    The Recommendation replaced the 2012 Revised Council Recommendation on Common Approaches on the Environment and Officially Supported Export Credits, which had also been in use at Finnvera. The OECD Working Party on Export Credits and Credit Guarantees will review the current Recommendation by the end of March 2019.

    The Recommendation of 2012 on environmental and social due diligence was revised in 2016 as follows:

    • The assessment of major expansions to existing industrial operations and new projects is carried out thoroughly, as before. By definition, a project covers all components that are physically and technically integrated with it. Other construction essential for the project (associated facilities) is considered in the assessment but does not affect the classification of the project.
    • The standards used for the assessment list the environmental and social impacts that are considered in the project review. More than before, the assessment pays attention to adverse project-related human rights impacts. Whenever necessary, the ESIA report is complemented with a separate human rights report.
      • Environmental impacts may be associated with factors such as: atmospheric emissions, including greenhouse gas emissions; waste water; solid waste; hazardous waste; noise and vibration; and significant use of natural resources.
      • Social impacts may be associated with factors such as: labour rights and working conditions; community health and safety and security; land acquisition and involuntary resettlement; the rights of indigenous peoples; cultural heritage; and project-specific human rights factors, such as forced labour, child labour and occupational health and safety situations posing a threat to human life.
    • The project under review is compared against the national legal requirements in the host country and against the relevant international standard. The project must always meet the national standards in the host country. If the international standard selected is stricter than the requirements in the host country’s legislation, the project must also comply with the standard.
    • The relevant international standard means the standards and sector-specific guidelines of the IFC/the World Bank Group. More stringent, internationally recognised norms, such as the European Union standards, may also be selected as a benchmark. IFC Performance Standards, which are used by the IFC and the Equator Principles banks, are applied in the review of project finance undertakings.
    • In the absence of a sector-specific environmental standard of the World Bank Group, the benchmarking must be done against an internationally recognised, sector-specific standard, such as a standard concerning the nuclear power industry, hydropower plants and animal welfare, as well as Good Practice Notes published by the IFC.
    • The World Bank Safeguard Policies and the IFC Performance Standards are those applicable on 7 April 2016. When such standards are updated, the ECG Working Party may decide to adopt the updated standards without undertaking a complete review of the Common Approaches. The other international standards and sources of guidance referred to above are those applicable at the time of the relevant project review.
    • In Category A project finance undertakings and, when necessary, in other projects, the borrower’s obligations include the monitoring of environmental and social issues as well as requirements set for implementation measures (Action Plan).
    • The reporting of greenhouse gas emissions of projects to the OECD has been specified as follows:
      • Report the estimated annual greenhouse gas emissions from all fossil-fuel power plant projects; and
      • Also report the estimated emissions from other projects where such emissions exceed 25,000 tonnes CO2-equivalent annually and where Finnvera has received the relevant information.
    • The OECD expert group develops common approaches and exchanges information on project review. This exchange of information concerns, among other things, the use of international standards and their potential for flexibility, the use of IFC Performance Standards in other than project finance projects, project review with regard to supply chains, assessing risks associated with existing operations, setting conditions for support, monitoring project implementation and project review in the event of small financing projects and SMEs, and cooperation in project review and implementation with Equator Principles financial institutions, multilateral financial institutions and ECAs from non-OECD countries.

    The project preview policy of Finnvera’s Large Corporates Unit, which was updated in 2013, has been revised by taking into account the new OECD Recommendation on Common Approaches.

  • Act and Decree on the State’s Export Credit Guarantees

    The Act on the State’s Export Credit Guarantees, which entered into force on 1 July 2001, introduces the environmental perspective to Finnvera’s operating principles as follows (Act on the State’s Export Credit Guarantees, Section 7):

    The following factors shall be taken into account when export credit guarantees are granted and when the terms and conditions of the guarantees are confirmed:

    1. the international rules and regulations applied to export credit guarantees, which are binding on Finland;
    2. international competition factors;
    3. the environmental impact of the project to be guaranteed, as part of the overall risk assessment of the project.

    Sustainable development means responsibility

    In keeping with the Government Decree, Finnvera takes the principle of sustainable development into account in export credit guarantee activities, as well as complying with internationally accepted principles and procedures for reviewing environmental and social impacts.

    The project review policy for export financing, confirmed by Finnvera’s Management Group on Financing on 10 November 2016, takes the above principles into consideration. When implementing the project review policy for export financing, Finnvera acts in line with its competitors.

Scope of application

In line with the OECD Recommendation, this policy applies to all export financing products provided by Finnvera where the accompanying credit has a repayment term of two years or more.

This policy excludes Environmental Guarantees handled by the Large Corporates unit, Finnvera Guarantees, Finance Guarantees and Bond Guarantees, as well as guarantees pertaining to military equipment or agricultural commodities.

Guarantees pertaining to shipyards and shipping companies that operate in accordance with the requirements of EU legislation or similar legislation are assessed in Finnvera whenever necessary. However, the assessments and reviews conducted and, for instance, any environmental permits granted must be submitted to Finnvera, if necessary.

Raw Material Guarantees are included in the scope of the policy. Raw Material Guarantees are granted by virtue of the Act on State Guarantees for Ensuring the Supply of Basic Raw Materials. For Raw Material Guarantees, environmental and social issues are determined separately for each project.

In a reinsurance situation where Finnvera agrees on reinsurance with the original insurer, Finnvera’s project review can be conducted on the basis of the assessment made by another export credit agency, a major multilateral financial institution participating in the financing, or the original insurer. The precondition is that the assessment is comprehensive enough.

In general, Finnvera’s project review encompasses the whole project even when export financing is granted only for a part of the project or for an individual delivery of equipment that is associated with a project.

Project-specific information searches are conducted to determine any environmental and social risks associated with Credit Risk Guarantees that are applied for to cover pre-delivery risks. Whenever necessary, applicants for export financing are asked to provide additional information.

The concessional credits granted by the Ministry for Foreign Affairs are always accompanied by Finnvera’s export credit guarantees. However, the Ministry’s Department for Development Policy is responsible for the review of the environmental and social impacts of these projects and for the related costs. The Ministry for Foreign Affairs determines the object and scope of the review required.

Process for reviewing environmental and social impacts

Screening, classification and review of projects

The purpose of screening is to identify the applications falling within the scope of Finnvera’s project review. The application is reviewed if it pertains to a project. The level of potentially negative and positive environmental and social impacts is identified during the screening and classification of projects. This information is then used to determine the appropriate scope of review and the project category.

  • Classification

    The project is classified into one of three project categories on the basis of the application for export financing and other background information:

    A: A project that may have significant adverse environmental and/or social impacts that may be irreversible and may extend broader than the actual project site. In practice, new production facilities and major expansions of production facilities in sensitive sectors and projects that are located in sensitive areas or in their immediate vicinity.

    - for example, a pulp mill, a mine and a large power plant

    B: A project that may have moderately adverse environmental and/or social impacts that are less significant and easier to control than those of Category A projects.

    - for example, a paper mill or expansion of a power plant, a new hospital or a mobile telephone plant

    C: A project that has minimal or no adverse environmental and/or social impacts.

    - for example, building of a mobile telephone network in a non-sensitive area.

    The limits for capacity and production, specified in Annex I to the OECD Recommendation, are used as a guideline when a project is placed in Category A.

    Annexes: OECD Common Approaches

  • Screening

    Applications for export financing are screened on the basis of the information provided on the application form. If the application is not included within the scope of Finnvera’s policy for reviewing the environmental and social impacts of projects (see the policy’s scope of application), it is not placed into any project category and does not require further processing with respect to environmental or social issues.

    An information search to determine potential environmental and social risks is conducted for applications where Finnvera’s risk is at most 10 million euros and the project associated with the financing is not located in a sensitive area or does not have an adverse impact on a sensitive area, and does not involve the likelihood of severe project-related human rights impacts. Unless decided otherwise, the application is given the designation “non-project”.

    For applications where Finnvera’s risk exceeds 10 million euros and applications, irrespective of the size of the risk, where the associated project is located in a sensitive area or can have an adverse impact on a sensitive area or involves the likelihood of severe project-related human rights impacts, the application and other information are used to determine whether the application is associated with a project that requires classification. A potential project is searched for by posing questions such as:

    • Is the export delivery associated with the building of a new production facility?
    • Is the export delivery associated with the modernization or expansion of an existing facility?
      • How much will the capacity change?
      • How much will the level of emissions and effluents change?
      • Will the use of raw materials or natural resources change?
    • Does the export delivery pertain to operations located in or near sensitive areas?
    • Is the natural environment altered?
    • Does the export delivery pertain to operations that have negative or positive social impacts, including human rights considerations (see Definitions)?
    • Is the delivery only a ‘spare parts delivery’?

    The building of a new production facility is a project. Other examples of projects include major expansions to existing production facilities that increase, for example, capacity, emissions, the use of raw materials or natural resources, or undertakings that lead to significant social impacts. Measures taken in or near sensitive areas are projects.

    However, replacement investments or deliveries of machines and equipment associated with existing operations are not projects provided that they do not involve a change described in the previous paragraph. Nor do spare parts deliveries meet the criteria for a project. Individual mobile stand-alone installations that themselves cause no environmental impacts are not projects (see also Screening, Finnvera’s risk at most 10 million euros).

    When applications for export financing are screened as “non-projects”, the following is determined before the financing decision: the sector of industry for the export delivery; the location of the site; and any other information associated with environmental and/or social impacts that is used for a rough assessment of the risks related to the operation of the facility.

  • Review of environmental and social impacts

    Finnvera’s project review examines the level of the project’s environmental and social impacts. The review also pays attention to the impacts of associated facilities (see Definitions).

    In general, Finnvera’s project review encompasses the whole project even when export financing is granted only for a part of the project or for an individual delivery of equipment that is associated with a project. In justified cases, a rough review is conducted on all operations directly linked with the project (e.g. an old industrial plant) if the operations are deemed to involve significant environmental and/or social risks or consequent credit risks.

    The project category given by Finnvera determines the level of the background studies required by the project:

    A: The applicant shall provide Finnvera with an Environmental and Social Impact Assessment (ESIA) report as well as other information pertaining to the project, such as any action plans that may have been made. The ESIA report must address the issues mentioned in Annex II of the OECD Recommendation. Apart from assessing environmental and social impacts, the ESIA report includes the process for consulting the local population and other relevant bodies and the Environmental and Social Management Plan for the operations. If it is likely that the project involves severe human rights considerations1, it may be necessary to complement the ESIA by specific human rights due diligence.

    B: The project review is based on the ESIA or other reports compiled on the project, the answers to individual questions concerning environmental and social impacts and, if necessary, further studies conducted by outside experts.

    C: No background studies are needed. However, in individual cases, for instance the validity of the environmental permit may be checked.

    The owner of the project company and/or the main supplier for the project and/or the project sponsor and/or the exporter is responsible for ensuring that the background studies required by the project category are made or commissioned. The applicant for export financing is responsible for supplying the information to Finnvera. When collecting background information, Finnvera also checks any statements and reports that are available through the National Contact Point (NCP) of the OECD Guidelines for Multinational Enterprises.

    The level of the project’s environmental and social impacts is benchmarked against the requirements laid down in local legislation and in the international standards in force. The benchmarking is primarily based on the World Bank Group’s technical environmental standards and ten Safeguard Policies2 that are relevant for the project. Alternatively, the benchmarking may be based on the eight Performance Standards of the IFC3 when this is justified due to a large project size or due to that the transactions share characteristics with project finance, or when other participating financial institutions use them.

    In the absence of a sector-specific environmental standard of the World Bank Group, the benchmarking must be done against an internationally recognised, sector-specific standard, such as a standard concerning the nuclear power industry, hydropower plants and animal welfare, as well as Good Practice Notes published by the IFC.

    Where projects are benchmarked against the World Bank Safeguard Policies, it may also be necessary to use other supplementary standards and sources of guidance to ensure an adequate coverage of certain potential social impacts. These impacts include, for example, community and gender impacts, labour and working conditions, and health, safety and security issues.

    If the project is carried out using project finance, the benchmarking is made on the basis of the aspects that are essential for the project among the eight IFC Performance Standards. If a major multilateral financial institution4 participates in the financing of the project, the standards of the institution in question can be used for benchmarking the level of environmental and social impacts.

    A more stringent standard than those listed above, such as European Union standards, can also be used for benchmarking the level of the project’s environmental and social impacts.

    The project must meet the requirements of local legislation and the requirements of the international standards used in the assessment of the project if these are stricter than local legislation.

    In the main, if a project is carried out within the EU in accordance with the requirements of EU legislation, Finnvera’s assessment of the project is more concise than normally. The same is done in individual cases if the project is carried out in the territory of some other country in accordance with that country’s legislation when this legislation is comparable to that of the EU. However, the assessments and reviews conducted and any environmental permits granted must be submitted to Finnvera, if necessary.

    Annexes: OECD Common Approaches

    1 For example, impacts that are particularly grave in nature (e.g. threats to life, child/forced labour or human trafficking), widespread in scope (e.g. large-scale resettlement and working conditions across a sector), cannot be remediated (e.g. torture, loss of health and destruction of indigenous peoples’ lands) or are related to the project’s operating context (e.g. conflict and post-conflict situations).

    2The World Bank’s ten Safeguard Policies are: Environmental Assessment (OP 4.01); Natural Habitats (OP 4.04); Pest Management (OP 4.09); Indigenous Peoples (OP 4.10); Physical Cultural Resources (OP 4.11); Involuntary Resettlement (OP 4.12); Forests (OP 4.36); Safety of Dams (OP 4.37); International Waterways (OP 7.50); and Disputed Areas (OP 7.60).

    3The eight Performance Standards of the IFC are: Assessment and Management of Environmental and Social Risks and Impacts; Labor and Working Conditions; Resource Efficiency and Pollution Prevention; Community Health and Safety and Security; Land Acquisition and Involuntary Resettlement; Biodiversity Conservation and Sustainable Management of Living Natural Resources; Indigenous Peoples; and Cultural Heritage.

    4 The major multilateral financial institutions are: the African Development Bank, the Asian Development Bank, the European Bank for Reconstruction and Development, the European Investment Bank, the Inter-American Development Bank, the International Bank for Reconstruction and Development, the International Finance Corporation, and the Multilateral Investment Guarantee Agency.

Disclosure of information

Finnvera encourages parties who apply for export financing and carry out projects, whenever possible, to make available information about the environmental and social impacts of projects and about the monitoring of these impacts.

A prerequisite for granting financing for Category A projects is that the information on environmental and social impacts is published 30 days before Finnvera signs the agreement on export financing. The relevant parties are requested to give their consent to publication.

In Category A projects, the international ESIA practice generally requires that information on environmental and social aspects is disclosed locally. Finnvera’s website contains a link to the Internet address where the ESIA report or its summary can be accessed. The scope of the information disclosed varies, depending on the project. It may also be agreed that the information is given in some other manner.

In addition, the following basic data on the project are published on our website:

  • the name and location of the project;
  • a description of the project; and
  • the project category (A).

Feedback given by stakeholders is collated and its contents can be reviewed in the event that the feedback brings out some new, important aspect of the project. If necessary, it may be agreed that any questions posed by stakeholders are passed on, for instance, to the party applying for export financing.

In addition, in line with the OECD Recommendation, at least once a year Finnvera makes available to the public information on projects classified in Category A and Category B for which it has made a commitment during the year.   The information made available on Category A projects is the same as in the above case of advance publication, supplemented with more detailed information on export financing. A brief summary is drawn up of the main environmental and social aspects of Category B projects. This includes information on the background material and international standards used for the review, and the contact information for the export credit agency. For both Category A and Category B projects, the relevant parties are requested to give their permission to disclose the information.

The requirement for disclosure of information may be waived for exceptional reasons (see the OECD Recommendation).

Links: Guaranteed transactions / Projects in category A

  • Definitions

    Environmental and Social Impact Assessment (ESIA) identifies, describes and assesses the environmental and/or social impacts of the project. Environmental and Social Impact Assessment includes a procedure for determining and assessing the environmental and/or social impacts of certain projects and for consulting the authorities and people whose circumstances or interests may be affected by the project5.

    Environmental impacts refer to the direct or indirect impacts on the environment arising from the construction and/or operation of the project⁵ or existing operations6. Environmental risk is the probability of such impacts occurring times the consequences of such an occurrence.

    Export deliveries for existing operations are not projects provided that the purpose is not to carry out significant expansion of a production facility that would increase emissions, the exploitation of natural resources and/or social impacts.

    Export financing products mean export credit guarantees (Buyer Credit Guarantee, Credit Risk Guarantee, Export Receivables Guarantee, Letter of Credit Guarantee, Bank Risk Guarantee, Investment Guarantee, Bond Guarantee, Finance Guarantee), Raw Material Guarantee, interest equalisation and the funding of export credits.

    Final commitment (as used in the OECD Recommendation) to the export credit guarantee takes place on the day when Finnvera signs the guarantee agreement.

    Other construction essential for the project (“associated facilities”) is construction that would not be implemented without the project and that is vital for the operation of the project. The party implementing, operating or managing the construction is the project owner, sponsor or some other body.

    Project means the realisation of a construction, facility or design, and other interference with the natural environment or landscape, including the exploitation of natural resources in the ground7. New facilities and major expansions or modifications of existing facilities are projects. A project encompasses all functions that are physically and technically integrated with it. The party implementing, operating or managing the project is the project owner or sponsor.

    Project category is a category issued by Finnvera that defines the project’s potential environmental and/or social impacts and the amount of background information required, as well as the scope of the review carried out by Finnvera and the need to publish information on the project.

    Repayment term means the repayment term referred to in the OECD Recommendation.

    Sensitive areas include National Parks and other protected areas identified by national or international law, and other sensitive locations of international, national or regional importance, such as wetlands, forests with high biodiversity value, areas of archaeological or cultural significance, and areas of importance for indigenous peoples or other vulnerable groups.

    Sensitive sector is a sector that is apt to cause significant adverse environmental and/or social impacts; see the OECD Recommendation, Annex I.

    Social impacts refer to the impacts of a project or existing operations on local communities and on persons involved in the construction and/or operation of the project. In this connection, social impacts include the human rights aspects associated with the project8. Social risk is the probability of such impacts occurring times the consequences of such an occurrence.

    AnnexesOECD Common Approaches

    5 Source: Act on Environmental Impact Assessment Procedure, 10 June 1994/468

    6 Environmental impacts may be associated, for instance, with the following factors: atmospheric emissions, including greenhouse gas emissions; waste water; solid waste; hazardous waste; noise and vibration; and significant use of natural resources.

    7 Source: Council Directive 85/337/EEC on the assessment of the effects of certain public and private projects on the environment (amended by Council Directive 97/11/EC).

    8 Social impacts may be associated with factors such as: labour rights and working conditions; community health and safety and security; land acquisition and involuntary resettlement; the rights of indigenous peoples; cultural heritage; and project-specific human rights factors, such as forced labour, child labour and occupational health and safety situations posing a threat to human life.

  • Monitoring and reporting

    In Category A project financing undertakings and, if necessary, in other projects, the borrower’s obligations include the monitoring of environmental and social issues as well as requirements for implementation measures (action plan). If other export credit agencies are involved in the project, information on environmental and social issues is exchanged with them. The goal is, through negotiation, to establish a common policy and requirement level for any agreement terms that may be set.

    For all Category A project financing undertakings and, if necessary, other projects, Finnvera expects to receive reports on the monitoring of the project’s environmental and social aspects during the repayment term of the loan.

    Finnvera’s Board of Directors is given statistical summaries of the financing projects supported in each project category and for each calendar year. Whenever necessary, the Board of Directors also receives reports on other environmental and social aspects of projects.

    Reports on the environmental and social aspects of Category A and B projects are submitted to the OECD Working Party on Export Credits and Credit Guarantees every six months.

Projects in category A

According to the OECD’s Recommendation of the Council on Common Approaches for Officially Supported Export Credits and Environmental and Social Due Diligence Finnvera shall publish environmental and social impact information on category A projects, which possibly may have significant adverse environmental and/or social impacts. The information shall be published when the guarantee still is an offer, at least 30 calendar days before Finnvera signs the financing agreement. After the agreement has entered into force the information is transferred with the relevant parties’ consent to the Guaranteed Transactions -page.

Offers regarding projects in category A to report.

Name of project: LNG to Power and Ahuachapán-Acajutla Transmission Line
Description of project: Construction of natural gas-fired thermal power plant, marine terminal for Liquefied Natural Gas (LNG) delivery, storage and regasification as well as a natural gas pipeline and transmission line.
Location and country of project: Acajutla, El Salvador
Environmental and social classification: A
Information published: 25 October 2018
Source of environmental and/or social impact information:
01_EIA T-Line Vol. I and II - Feb 2017.pdf (PDF, 74 Mb)
01_ESIA Tome I to V DEC 2016.pdf (PDF, 870 Mb)

Name of project: Shanying Huazhong, Paper Mill Project
Description of project: Construction of an industrial packaging paper mill, a coal-fired power plant, solid waste power plant and other components
Location and country of project: Gong’an County, Jingzhou City, Hubei Province, China
Environmental and social classification: A
Information published: 14 September 2018
Source of environmental and/or social impact information: Environmental Impacet Assesment Report (PDF)

Name of project: Modernización Ampliación Planta Arauco (MAPA)
Description of project: Construction of a new pulp production line to an existing pulp mill
Location and country of project: Comuna de Coronel, Chile
Environmental and social classification: A
Information published: 24 August 2018
Source of environmental and/or social impact information:
http://seia.sea.gob.cl/expediente/ficha/fichaPrincipal.php?modo=ficha&id_expediente=6856586

Name of project: Fruta del Norte
Description of project: gold mine
Location and country of project: Zamora Chinchipe Province, Yantzaza Canton, Los Encuentros Parish, Ecuador
Environmental and social classification: A
Information published: 31 May 2018
Source of environmental and/or social impact information: Environmental Impact Assessment Reports (PDF)

Name of project: Eti Bakir Adiyaman Copper Mine project
Description of project: Deliveries to the copper flotation plant
Location and country of project: Adiyaman, Turkey
Environmental and social classification: A
Information published: 28 March 2018
Source of environmental and/or social impact information: Environmental Impact Assessment Report (PDF, 230 Mb)

Buyer's country: Australia
Exported goods/Project: Container handling equipment
Project classification: A
Information published: 19 August 2015
Environmental and/or social impact information on Project in category A:
http://portcapacity.portofmelbourne.com/pages/home.asp

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