In November last year, the International Chamber of Commerce (ICC) opened a consultation process on proposed standards for sustainable trade and trade finance that would provide a consistent means of conveying the ESG credentials of a given transaction across each sustainability dimension. John Denton, ICC secretary general, updates Eleanor Wragg on the progress so far, and outlines the urgent need for policymakers to take into account the requirements of business when developing ESG regulations.


GTR: What response has the ICC received from the consultation since it was opened at the end of 2021?

Denton: We have received a positive response. Trade finance is effectively a US$10tn participant in the global financial sector, and we have an obligation to do the hard work here – and it is hard work. Having been involved in creating standards in the Asia-Pacific Economic Cooperation, I know just how difficult developing standards is; it requires you to get into the detail. You can’t do it from your desktop; you have to engage with people.

We opened up the consultation because a really broad stakeholder group needs to buy into this in order to develop a framework. We received a blockbuster response of more than 300 institutions making comments over the three-month consultation period. These are not just banks, but also SME associations and international organisations, so it is a really broad range of stakeholders.


GTR: What themes are emerging from the consultation responses?

Denton: It appears that our rhetoric and constant pushing for action on climate change has paid off. In the responses, there is a strong buy-in for the structure of the framework itself, so it is clear that people see the need for it. The issue is actually getting to an enabling framework.

There is a clear endorsement of the idea that we need to take a phased approach towards implementation in the market.

We need to start simple, like we do with all of our projects, but always aim big.

We are also seeing a lot of questions regarding possible implementation challenges, and I think that is perfectly natural. We need to identify what those are so we can solve them. Some good questions we are seeing include how banks and companies will be able to access the data needed to determine the sustainability profile of transactions, and what should be done in areas where no recognised standards exist to assess the performance of a trade.

These are things that are being identified now as practical questions. They aren’t barriers to implementation, but they are issues that require a response. These questions tell us that we need to ensure the framework is capable of being applied through automated solutions.

We don’t need another manual KYC style process that drives up transaction costs. So we’re looking at that.


GTR: As the global ESG conversation matures and regulatory pressure increases around disclosures, what factors do exporters and financiers need to start taking into account?

Denton: There are two key processes in play at the moment that have got the potential to shape the global ESG finance market. The first is the EU taxonomy and the second is the International Financial Reporting Standards’ (IFRS) work on sustainability reporting. From these, we think there will be clear moves in the coming years to standardise what qualifies as ESG aligned, which is what we need, and there will be new expectation of banks and corporations to report tangibly on their sustainability performance. People want to see that, because they are disturbed at the variety of different ratings that can be applied – we’re in a ridiculous situation where one company can achieve on the 40 different indices almost 40 different results. By joining up the way the landscape is shaped, we expect to see greater standardisation, and I think that should be welcomed because it will reduce uncertainty and confusion.

However, we need to ensure that any new requirements are applied to trade in a way that is sensitive to the realities of complex high-volume trade transactions. There is an obligation on major players, particularly in the trade market, to make the case to governments about why trade finance is very different to other big-ticket financial instruments, because there is often a hopelessly lazy approach in this regard.

That is why we are developing the sustainable trade finance framework, because otherwise, it will either not be dealt with or it will be dealt with as an inadvertent consequence, which is often how trade finance is left languishing.

We need to support the alignment with climate so that people are confident they know what they are doing in meeting the expectations of customers and institutions.


GTR: What needs to happen to ensure that the SMEs in emerging markets that stand to benefit most from a greater focus on sustainability aren’t shut out by the burden of ESG compliance?

Denton: Two-thirds of the ICC membership is now in emerging and developing economies, and the real economy issues we tackle predominantly affect SMEs, micro-SMEs and sole traders. The way to enable SMEs to take meaningful action to improve their sustainability performance is by empowering them rather than yelling at them. Small businesses need the support, they need the tools, and they need the finance in order to enable the transition. They need to be incentivised, and they need to have the capability built.

The tools used by multinationals to decarbonise their operations are simply not accessible to SMEs with few resources. For its part, the ICC has taken action in creating a tool that enables SMEs to determine their greenhouse gas footprint and benchmark themselves against other players in their sector, in their region, and even in their town, and it also gives them steps to take to enable them to do something about it, which we as the ICC can then certify. This gives them the opportunity to show a supply chain leader or a customer that they are sustainable in the way that they produce their goods and services.


GTR: Is enough being done to lay the ground for a sustainable and inclusive future for trade?

Denton: Clearly not. The reality is that public policymakers and a number of large corporations are still not making the effort required to enable the real economy of SMEs and micro-SMEs. The line I hear all too often is that SMEs are hard to work with. What a load of rubbish. It is on them to realise that you can’t have a one-size-fits-all approach, because while that may be administratively convenient and may appear to be efficient, it is just not effective. They need to think about the way in which they help SMEs from the SMEs’ perspective, not from a convenience perspective, so it will be quite a mindset change.

On the regulatory front, the issue for me is, is it smart regulation? Is it regulation that recognises that ESG standard-setting is not an exact science? We understand that there are very complex practical and political issues that need to be handled with care if we are going to enable a fair and just transition to a net-zero economy, but governments need to work hand-in-hand with business to understand the practicability of any new framework and the potential real-world implications. Theoretical purity may win political points, but the goal of scaling sustainability and sustainable financing will only be met through dogged pragmatism.


GTR: What are the ICC’s objectives on ESG in trade for the coming months?

Denton: We will shortly be publishing a summary of responses to the consultations, and then we will be resuming working group sessions with a slew of participants. Our aim is to deliver the first iteration of the sustainable trade finance framework at the UN General Assembly in September.

It will be a clear framework, which is hopefully effectively aligned and can therefore be automated so we can expedite processes, lower costs and ensure access. It should be in the interests of governments and large corporates and the global financial sector to enable that to happen.

Getting this taxonomy right is a really important issue for us, but it’s not our only focus. We’re really keen on ensuring we get sensible approaches to Cop27, which will be held at the end of the year in Egypt. We want to go to Cop27, as we did to Cop26, with practical tools, not rhetorical tools. I describe our work as the real economy in action, because others may talk, but we get stuff done.