Principles for Global Trade to support sustainable future
Dual focus
The ICC’s methodology is revolutionary in its dual focus. It evaluates not only the environmental sustainability of transactions but also their contribution to socio-economically sustainable development. This dual approach is pivotal in achieving the Paris Agreement’s ambitious goal of limiting global warming to 1.5°C above pre-industrial levels and in realizing the United Nations Sustainable Development Goals.
HSBC, in collaboration with five other banks, the Boston Consulting Group and the ICC, has played an instrumental role in developing these principles. Their collective efforts culminated in the first iteration, “Wave One,” which was introduced at COP27 in Egypt. This initial phase laid the groundwork for establishing the sustainability credentials of all parties involved in trade transactions, focusing on the textile and apparel sectors.
“Wave Two” of the ICC’s initiative expands its reach significantly. It extends beyond textiles to encompass vital sectors like energy, automotive, and agriculture. Moreover, it introduces an innovative dimension by evaluating the sustainability of transportation methods in trade, thereby enhancing the robustness and comprehensiveness of the analysis. A unique grading system now assigns a ‘score’ to transactions, providing a quantifiable measure of their sustainability.
Deyana Cherneva is Head of Global Trade and Receivables Banking for HSBC in the Middle East North Africa and Türkiye region.
Sector-specific standards
The insights from “Wave One” were illuminating, particularly in underscoring the need for sector-specific standards. The textile industry, for example, highlighted the necessity of verifiable sustainable sourcing. This principle is likely applicable across various sectors, each requiring its unique set of sustainability data.
Acknowledging the diversity of industries, ICC’s “Wave Two” aims to establish a sector-specific sustainability standards database. This effort ensures that sustainability measures are not only universal in their intent but also tailored to the unique characteristics of each industry.
A crucial aspect of these new standards is the integration of external validation of sustainability claims and the automation of this data within company operations. Identifying appropriate external accreditation and embedding this information into technological systems is vital for navigating the increasingly digital landscape of trade finance.
Sustainability and social standards are not novel in finance; they exist in various forms, such as the Equator Principles for project finance and the Green Bond Principles for capital markets. However, their application in the complex and voluminous world of global trade finance is a bold and ambitious move. The impact could be substantial, given trade’s pivotal role in the global economy and its significant contribution to global emissions.
Trade finance transcends mere financial provision. It encompasses contingent solutions like guarantees and letters of credit, now recognized under the Green Loan Principles managed by various global financial associations. This inclusion broadens the potential impact of sustainable trade standards.
This initiative marks a first in the industry: developing principles specifically for sustainable trade. HSBC’s active involvement in shaping these standards is a clear indication of the financial sector’s commitment to a sustainable future. As these principles take root, they promise to reshape the landscape of international trade, steering it towards a more sustainable and equitable horizon.
Deyana Cherneva is Head of Global Trade and Receivables Banking for HSBC in the Middle East North Africa and Türkiye region.