The International Chamber of Commerce (ICC) has proposed a new set of rules to better define what sustainability means in the $5 trillion trade finance arena.
At the moment, there is no single sustainability framework for trade finance, which is complicated due to the number of parties involved in any transaction and the lengthy supply chains that need to be monitored.
According to Trade Finance Global, existing frameworks governing sustainable finance are not well-suited to deal with the complexities of international trade.
The ICC has released a new paper on the issue that it expects to be formalised next year.
It was produced with the Boston Consulting Group with input from more than 200 companies and banks, according to Reuters.
Work in progress
More input will be sought from governments and other parties before the framework is finalised.
The ICC could then look to develop sectoral standards for specific types of transactions.
The report says that a single trade transaction can involve 20 different parties and different types of goods, services, and raw materials crossing multiple jurisdictions, with each using different forms of transport.
John W.H. Denton AO, secretary-general of the ICC, said: “The proposed framework we are setting out today is intended to cut through the inherent complexity of global value chains, establishing a standard methodology for banks and corporates to reliably grade the economic, environmental, and social performance of individual transactions.”
The framework will be under consultation until the second quarter of 2022, when a more detailed framework would be delivered. Final rules would then come in the third quarter.
UK Export Finance
Sustainability in export finance has been prioritised by UK Export Finance (UKEF), Britain’s export credit agency.
Last year, UKEF doubled it support for sustainable projects to £2.4bn, the government has said.
As COP26 concludes, the US and China have agreed to work together to deliver the 1.5C temperature goal set at the 2015 Paris summit, the BBC reports.
However, COP president Alok Sharma has warned that the summit could run “out of time” if representatives don’t come forward with new solutions on how to practically achieve this target, reports Sky.
His plea comes as UN secretary general Antonio Guterres said the target of limiting global warming to 1.5C above pre-industrial levels this century was “on life support”.