A month ahead of the start of this year’s United Nations climate summit (“COP27”), the International Chamber of Commerce has launched a call to banks, corporates and technology companies to participate in piloting a ground-breaking framework to grade the sustainability profile of individual trade transactions.
Following an extensive global consultation exercise earlier this year on the initial recommendations set out in ICC’s white paper on “Standards for Sustainable Trade and Sustainable Trade Finance”, the organisation – in partnership with Boston Consulting Group – has worked to define an initial framework capable of being piloted today in high-volume transaction environments.
To this end, the “wave one” ICC Sustainable Trade Framework will work on the basis of a simple matrix to determine whether the different elements of a transaction are sustainable.
In order to focus resource in this first phase of the project, ICC has taken the decision to focus the piloting of the new Sustainable Trade Framework on the textile industry. As such, for the purposes of the “wave one” framework only textile-specific standards have been approved by ICC for measuring the relevant components of any given transaction.
ICC is now inviting applications from banks, corporates and technology providers to pilot the application of the framework for relevant transactions over an initial three-month period. These pilots will be used to gauge industry experience in assessing transactions under the framework in practice – the results of which will feed into its future elaboration and extension to other industries.
ICC has published before a major report setting out proposals to tackle the longstanding challenge of defining and setting common standards for sustainable trade and associated financing.
The paper – developed in partnership with the Boston Consulting Group through a global consultation exercise involving over 200 banks and corporates – outlines the first-ever standardized framework and assessment methodology to qualify the sustainability profile of trade transactions.
Unlike other asset classes, such as bonds, no standards currently exist to allow financial institutions to grade the sustainability performance of trade finance transactions
The new report highlights that existing frameworks governing sustainable finance – which tend to solely focus on the intent of financial instruments – are not well-suited to deal with the hidden complexities of international trade. For example, a single trade transaction can involve as many as 20 different parties – involving different types of goods, services and raw materials crossing multiple jurisdictions and requiring different forms of transport.
Speaking on the launch of the paper, ICC Secretary-General John W.H. Denton AO said:
“We recognize the imperative to ensure that international trade is a trusted vector of economic, societal and environmental progress. But the difficulty of defining workable sustainability standards for cross-border commerce should not be underestimated. 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 report proposes a comprehensive assessment framework that provides transparency on the sustainability credentials of different components of a trade transaction – including the buyer and seller, the nature of the goods being sold, the intent of a transaction and the mode of transportation.
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