In its work as an export bank and export credit agency of the Republic of Croatia, HBOR, when considering loans and/or export credit insurance, encourages all participants in export business to respect the principles of corporate social responsibility by considering issues of environmental protection, human rights and sustainable export credits.
HBOR has regulated its conduct in this part of corporate social responsibility through an internal document (Ordinance on the Implementation of OECD Recommendations on Environmental Protection and Social Impact and Sustainable Export Credits) which provides for compliance with two recommendations of the Organisation for Economic Cooperation and Development (OECD) that regulate these areas.
a) OECD Recommendation of the Council on Common Approaches for Officially Supported Export Credits and Environmental and Social Due Diligence – The “Common Approaches“, OECD/LEGAL/0393, which was adopted on 28 June 2012, and revised on 6 April 2016 and
b) OECD Recommendation of the Council on Sustainable Lending Practices and Officially Supported Export Credits, OECD/LEGAL/0442, adopted on 30 May 2018, which substitutes the principles and guidelines in this area that had been applied since 2008.
These recommendations apply to export credit and export credit insurance products that fall within the scope of the OECD Arrangement on Officially Supported Export Credits, or to state support for the export of capital goods and/or services with a repayment period defined by each recommendation. In accordance with the application of the OECD Agreement, the recommendations do not apply to exports of military equipment or agricultural products, as well as to export credits and export credit insurance products where the risk of non-payment under the guarantee or credit is on the exporter (e.g. issuing and/or insurance of export bank guarantees, loans for pre-export finance/working capital/liquidity etc.).
By applying these recommendations, HBOR, in the process of analysing individual applications for loan and/or insurance of export transactions, takes into account relevant international requirements and standards, including local standards and guidelines of the importing countries, regulations of the European Union, the United Nations, the World Bank Group and other major multilateral financial institutions.
OECD RECOMMENDATION OF THE COUNCIL ON COMMON APPROACHES FOR OFFICIALLY SUPPORTED EXPORT CREDITS AND ENVIRONMENTAL AND SOCIAL DUE DILIGENCE
The OECD Recommendation of the Council on Common Approaches for Officially Supported Export Credits and Environmental and Social Due Diligence includes recommendations and related to environmental protection and human rights, which are adhered to by state export credit agencies and export banks when considering applications for loans and/or insurance of export transactions that are within the scope of the OECD Agreement, with a repayment period of two years or longer.
The Recommendation envisages certain actions of lenders and/or insurers when considering the abovementioned requests for state support to exports, from the aspect of the impact of export business on the environment and nature conservation, the local community directly involved in this business, people involved in its implementation and human rights.
HBOR has incorporated the procedure provided for in the Recommendation into its internal documents, in such a way that, when considering loan applications and/or applications for insurance to which the Recommendation applies, it takes, among others, the following steps:
- Procedure for verifying applications and determining the need for further action – classification of export transactions and/or detailed assessment of their impact on the environment and society in the following cases:
- Exports within or near sites, the environment of which is sensitive to changes (e.g. national parks, nature parks and other protected areas, as well as other sensitive sites such as wetlands, forests of great biodiversity, areas of archaeological or cultural significance for indigenous population or other vulnerable groups),
- Significant impact of the transaction on human rights violation or
- When the share of the state in lending and/or export insurance is ≥ 10 million SDR.
The verification procedure is carried out on the basis of information collected through the Questionnaire on Environmental Protection and Social Impact which is an attachment to loan application and insurance application.
- Classification procedure – for cases for which the need for further action has been determined in the application verification procedure, implies identification of potential positive and negative impacts of the export transaction on the environment and society, thus classifying export transactions into 3 categories:
- category A: have or could have potentially significant adverse effects on the environment and/or society,
- category B: possible environmental and/or social impacts are less harmful than category A impacts,
- category C: have negligible or no adverse impact on the environment and society.
No further action is required for category C, while a more detailed impact assessment is performed for categories A and B.
- Detailed assessment of the impact of export transaction on the environment and society – includes comparison of environmental and social effects of export business with prescribed international standards, consideration of measures that can be taken to prevent, reduce or eliminate adverse effects and/or to improve environmental and social effect of export business, consideration of a more detailed analysis of human rights etc.
- Evaluation, decision-making and monitoring of project – information on the verification, classification and impact assessment procedures carried out are taken into account when deciding on project application approval or rejection, where ex-ante or ex-post conditions are determined if necessary (e.g. measures taken for the purpose of preventing occurrence, mitigating or eliminating environmental and social risks, monitoring the implementation of such measures, submission of periodic reports on project implementation and effects, etc).
- Exchange and publication of information and reporting – information on projects classified into categories A and B, for which loans and/or insurance have been approved or are planned to be approved, are exchanged, if necessary, with other export banks and export credit agencies, they are reported to the relevant authorities and are published on HBOR’s website, where the prescribed deadlines, the obligation to maintain business secrets and the applicable relevant restrictions on the right of access to information are obeyed.
More information on OECD Recommendation of the Council on Common Approaches for Officially Supported Export Credits and Environmental and Social Due Diligence and the standards set in it can be found on the following links:
- OECD Recommendation of the Council on Common Approaches for Officially Supported Export Credits and Environmental and Social Due Diligence
- EHS Guidelines
- World Bank’s Environmental and Social Framework Standards
- IFC Performance Standards
Export transactions classified into the categories A and B
HBOR classifies export transactions for which a loan and/or insurance application has been received into the categories A, B and C in accordance with the OECD Recommendation on Common Approaches for Officially Supported Export Credits and Environmental and Social Due Diligence.
Information on export transactions classified into categories A and B are published for category A no later than 30 days before the decision on loan and/or insurance approval is made, and for category B within 35 days from the execution of the loan and/or insurance contract.
List of export transactions classified into the categories A and B in the approval consideration procedure
List of export transactions classified into the categories A and B, for which loan and/or insurance has been approved
OECD RECOMMENDATION OF THE COUNCIL ON SUSTAINABLE LENDING PRACTICES AND OFFICIALLY SUPPORTED EXPORT CREDITS
Low Income Countries* often face high public debt that may exceed their ability to reduce poverty or provide basic government functions (e.g. health care, education, etc.). Given this, there is a possibility that the granting of export credits to public sector debtors could contribute to the accumulation of unsustainable levels of external debt in these countries, and therefore this risk should be taken into account before approving new export credits to these debtors.
OECD Recommendation of the Council on Sustainable Lending Practices and Officially Supported Export Credits contains recommendations that state export credit agencies and export banks follow when considering applications for a loan and/or insurance for export transactions that are within the scope of the OECD Arrangement, that have repayment periods of one year or longer and where clients are public debtors or debtors guaranteed by the state from low income countries.
This Recommendation stipulates that, in the decision-making process for approving export credit and/or insurance applications to which the Recommendation applies, account should be taken of the obligations of each country of debtor towards the World Bank and the International Monetary Fund and whether invested funds promote the economic and social progress of a low income country without jeopardising its financial future and long-term development.
HBOR has incorporated these procedures into its internal documents with respect to such applications as follows:
- When analysing export credit or insurance applications:
- Consideration of the results of the Debt Sustainability Analysis (DSA) carried out by the IMF/World Bank for individual countries under the IMF-World Bank Joint Debt Sustainability Framework (DSF) as well as the programme/policies and other relevant documentation related to the placement for which export credit and/or insurance is considered;
- Taking into account existing restrictions on public sector borrowing without subsidised interest rate (i.e. non-concessional loan) in accordance with the methodology applied by the World Bank and the IMF, i.e. the IMF’s Debt Limits Policy (DLP) or the World Bank’s Sustainable Development Finance Policy (SDFP).
- When making approval decisions:
- No support to debtors subject to zero limit on non-concessional borrowing, and
- If a loan exceeds SDR 5 million or SDR 1 million in very small countries with a level of national income lower than USD 1 billion: requesting confirmation from relevant government bodies that the export transaction/cost is in line with IMF or World Bank policies for that country.
* Low Income Country is a country that meets the conditions for finance under the IMF’s Poverty Reduction and Growth Trust – PRGT or a country that has access to interest-free loans or grants of the International Development Association, World Bank Group, IDA (IDA only country). The list of these countries is available on the websites of the OECD, the World Bank and the IMF.
More information on the OECD Recommendation of the Council on Sustainable Lending Practices and Officially Supported Export Credits and the documentation it covers can be found on the following links:
- OECD Recommendation of the Council on Sustainable Lending Practices and Officially Supported Export Credits
- World Bank’s and IMF’s Joint Debt Sustainability Framework (DSF)
- World Bank’s and IMF’s Debt Sustainability Analysis (DSA)
- IMF’s Debt Limits Policy (DLP)
- World Bank’s Sustainable Development Finance Policy (SDFP)