OECD common approaches explained

OECD Common Approaches are the OECD Council Recommendation on Common Approaches for Officially Supported Export Credits and Environmental and Social Due Diligence, under which Adherents screen, classify and review the environmental and social impacts of projects and existing operations that seek official export credit support.

The updated Recommendation (OECD/LEGAL/0393) was adopted by the OECD Council on 20 March 2024. It is separate from the OECD Arrangement on official export credit financial terms, though both apply to officially supported export credits. The Common Approaches address environmental, social and related human rights due diligence rather than CIRR, repayment terms or premium rules.

Scope of the OECD Common Approaches

Adherents should screen all applications for officially supported export credits covered by the Recommendation. Screening identifies whether applications relate to projects or existing operations, whether exports are destined to locations in or near sensitive areas, whether there may be a high likelihood of severe project related human rights impacts, and whether the Adherent's share is equal to or above SDR 10 million.

Classification is required for all projects in or near sensitive areas irrespective of share, and for all projects for which the Adherent's share is equal to or above SDR 10 million. Existing operations at or above that share must be assessed for potential environmental or social risks. Applications below the SDR 10 million threshold that are not in or near sensitive areas generally require no further action beyond screening, except where screening identifies a high likelihood of severe project related human rights impacts.

"Projects" for these purposes are applications relating to exports of capital goods and/or services to an identified location for a new commercial, industrial or infrastructure undertaking, or for an existing undertaking undergoing material change in output or function that may change environmental or social impacts. The project includes components the buyer or project sponsor directly owns, operates or manages that are physically and technically integrated with the undertaking.

Categories A, B and C

Category A covers projects with potential significant adverse environmental and/or social impacts that are diverse, irreversible and/or unprecedented, potentially affecting an area broader than the sites of physical works. Category A in principle includes projects in sensitive sectors or located in or near sensitive areas. An illustrative list appears in Annex I of the Recommendation.

Category B covers potential impacts less adverse than Category A: typically few in number, site specific, with few if any irreversible effects, and with mitigation more readily available. Category C covers projects with minimal or no potentially adverse environmental and/or social impacts. Beyond screening and classification, no further action is required under the Recommendation for Category C projects.

For Category A, Adherents should require an Environmental and Social Impact Assessment (ESIA). The applicant provides the ESIA report and supporting studies. An ESIA should not be carried out and reviewed by the same party. Category B reviews require appropriate information on relevant impacts; scope varies by project. Where severe project related human rights impacts are likely, review may need specific human rights due diligence.

Benchmarking and decision making

When undertaking a review, Adherents should benchmark projects against the relevant aspects of all eight IFC Performance Standards. Where projects involve sovereign obligors, Adherents may instead benchmark against all ten World Bank Environmental and Social Standards. Where major multilateral financial institutions support the project, their standards may be used. Adherents should also benchmark against relevant World Bank Group Environmental, Health and Safety Guidelines. Projects must comply with host country standards in all cases and should meet the international standards against which they are benchmarked, recognising margins of tolerance within those standards.

Adherents evaluate screening and review information before final commitment to official support. Support may be refused or conditioned on prevention, minimisation, mitigation or remedy measures. For all limited or non recourse project finance Category A projects, the Recommendation sets additional expectations on independent environmental and social expertise as stated in its decision making provisions.

For Category A projects, Adherents should require that environmental and social impact information be made publicly available as early as possible in the review process and at least 30 calendar days before a final commitment to grant official support. Ex post reporting to the OECD Export Credit Group covers Category A and Category B projects for which a final commitment has been issued.

Monitoring, disclosure and climate

Adherents report Category A and Category B commitments to the Export Credit Group and exchange information to build common practice. The Recommendation also provides for further work on climate related issues, greenhouse gas estimation experience, sector specific challenges such as nuclear facilities, and project related human rights impacts. Public disclosure of Category A environmental and social impact information before final commitment is a transparency obligation aimed at allowing comments to inform decision making.

National ECA ordinances and handbooks transpose the Recommendation into local procedure. Screening questionnaires, classification memoranda, ESIA review panels and condition precedents in cover documentation are the operational artefacts. Non Adherent ECAs may apply equivalent standards voluntarily to support a level playing field, which the Recommendation encourages.

Existing operations, as distinct from projects, are also covered when the Adherent's share meets the SDR threshold or when severe human rights risks are identified at screening. That extends due diligence beyond greenfield builds to material changes and to ongoing operations financed with official support.

The Common Approaches do not set interest rates, maximum repayment terms or minimum premium rates. Those remain Arrangement or national product questions. They do determine whether official support can proceed, and on what environmental and social conditions, for projects that pass financial eligibility.

Institutional place among ECAs

Each export credit agency of an Adherent implements the Common Approaches through national procedures. Agencies such as UKEF and peer ECAs apply screening and classification when official support is requested for capital goods and services exports. German Hermes explanatory material describes the Common Approaches as the shared procedural and assessment framework for environmental, social and human rights issues on officially supported export transactions among OECD export credit providers.

The Common Approaches promote coherence with Adherents' wider environmental, climate, social and human rights policies, equivalence of measures to reduce trade distortion, and a global level playing field. They are a due diligence recommendation for official support decisions, not a private bank voluntary code and not a substitute for host country law.