ICC Principles for Sustainable Trade: Wave 2
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Global trade represents as much as 30% of all carbon emissions. It is therefore imperative that trade transforms itself into an engine for the implementation of the Paris Agreement and for sustainable development. It must also become a facilitator of sustainable practices across international, sectoral and enterprise levels. The growing interest in environmental, social and corporate governance (ESG) provides a beacon of hope for change; yet this interest brings with it a greater demand for precision and clarity on what constitutes sustainable international trade and sustainable trade finance.
Each trade transaction connects numerous parties across the globe, transporting any good to any country, via any means. The distinct nature of each transaction often means there is no standardised framework that accurately assesses sustainability across the entire transaction.
This is further complicated by the fact that there are multiple definitions of sustainability, as well as multiple means of evidencing it. The lack of standardisation hinders the growth of sustainable trade finance and can even confuse or distract efforts to promote increased climate action and sustainability. Clarification is needed to avoid green washing, to align international trade and trade finance with the goals of the Paris Agreement, and to bridge the finance gap to reach these goals.
ICC embarked on a project in 2021 to address this gap, with the aim to:
The report has been designed with usability in mind for financial institutions, while simultaneously improving reach, applicability, and rigour.
Relative to Wave 1, Wave 2 focuses on:
The work aims to evaluate the sustainability of trade in an accessible, standardised and automated process. It utilises existing resources and information to provide grades across an entire trade transaction in terms of multiple dimensions of sustainability and intends for international transactions to be transparently and consistently compared.
The principles leverage existing expertise and industry standards to assess trade finance transactions across four ‘components of trade’ – the ‘use of proceeds’, ‘seller’, ‘buyer’, and ‘distribution’, and is in effect a 4 x 2 matrix, showing the sustainability of each of the four components of a transaction across the two dimensions of sustainability, namely environmental and socio-economically sustainable development.
The process of constructing these principles has brought together stakeholders from trade banks, corporates, technology players and Boston Consulting Group to reach an agreed common definition of sustainable trade and sustainable trade finance, establish a mechanism to measure and assess the sustainability of trade according to these definitions, and support the industry in adopting this framework.
Alongside the launch of the report, a pilot programme is ongoing to test its applicability in the real world. ICC will set out its findings from the pilot, as well as how it will use these results to improve its use and applicability. We will develop this work further and provide the necessary practical support for its implementation. Companies that may be interested in participating in the pilot process are invited to reach out to the ICC team for further details.