Without wanting to sound overly reductionist, there are ways of doing this by focusing on the product that underpins a transaction, rather than focusing on the transaction itself. This would be a welcome move to increase transparency anyway, but we can all agree that it is the product and the production process that pollutes, so a move towards “Know Your Goods” and how they are associated with Sustainable Development Goals and the EU Taxonomy enables the level of granularity that a trade finance provider needs.
Finally, because we can take everything down to the product level, this means that we can effectively price for sustainability. It would be possible to integrate preferential terms for transactions or contracts that are sustainable by virtue of the products or services intrinsic to them. Many banks want to move towards a process of more favourable terms for sustainable supply chains – the product or service level approach enables the real time data to do this.
Many years ago I was involved with productivity research that looked at the management of “intangibles” in business. “Intangibles” are, broadly speaking, the things that drive ESG management: effective governance, decent work practices, training, Corporate Responsibility programmes, environmental impact management and innovation. The startling finding of that research was that companies that managed their intangibles well were statistically signficantly more productive than those who did not, by a margin of around 10%. More recent research has corroborated these findings.
The question, then, is why has this got caught within the compliance function? Why is it seen as a regulatory push that is driving the momentum for change, when identifying and measuring a business’s ESG status might lead to better credit terms for better businesses? The imperative of sustainability is a commercial imperative – not just a planetary one. This may well be the moment in time where everyone can genuinely “do well by doing good”.
Interested in creating a standardised sustainability score across the world of trade?
Sign-up to our webinar on the 14th September for more info.