Two years have passed since Standard Chartered launched its sustainable trade finance proposition to support corporates seeking to improve the environmental and social performance of their supply chains. Pradeep Nair, the bank’s global head of structured solutions and development, discusses the lessons learned so far and outlines the opportunities ahead for leveraging finance to drive positive impact in trade.


The need for sustainability in global trade has never been more urgent. As the world faces unprecedented challenges, from climate change to social inequality, corporates are under increased pressure to be sustainable and provide more sustainable customer offerings. To do so they need to implement more sustainable, inclusive and resilient supply chains – and banks have a crucial role to play in supporting them.

By linking trade and supply chain finance to more ethical and responsible activities, banks can channel funding to accelerate the role of trade in achieving the objectives of the Paris Agreement and the United Nations Sustainable Development Goals. However, with scores of metrics and assessment techniques as well as varying levels of environmental, social and governance (ESG) maturity and ambition among markets, cutting through the noise to differentiate and incentivise sustainable supply chain activities in an impactful way is easier said than done.

With a footprint that connects emerging and high-growth markets with more established economies, Standard Chartered has a presence in some of the markets worst hit by environmental and social challenges. In March 2021, to enable its clients to better understand their ESG risks as well as the solutions that can be offered to mitigate them, the bank launched an innovative sustainable trade finance proposition. The offering, which builds the Loan Market Association’s Green and Sustainability-linked Loan Principles into the bank’s financing framework, covers four pillars: sustainable goods, sustainable suppliers, sustainable end use, and transition industries. It encourages clients to improve disclosure, reporting and definition of use, while meeting their ESG goals.

“The framework is elegant in its simplicity because it enables us to communicate effectively to clients what is meant by sustainable trade finance,” says Nair. “By merely saying we can either do a use of proceeds transaction or a sustainability linked structure, neither our client nor our own teams will be able to identify the opportunities or risks in our clients’ businesses. We wanted to solve for flow opportunities as opposed to only episodic transactions.”

“The proposition brings out the ability for corporates to identify sustainability standards that they can map their business processes to, and where those don’t exist, it provides an opportunity for dialogue on the client’s activities,” he adds. “As a result, it elevates the discussion to a much more strategic topic that encompasses business resilience and continuity, and by connecting financing into the conversation, it also empowers clients to achieve alignment with their external stakeholders.”


Meeting a real need

Two years on, the response from corporates to the bank’s offering has been overwhelmingly positive, with a year-on-year growth in sustainable trade finance assets of 2.5 times. Demand has come from all over the globe, with over 4,200 different clients across 35 countries taking advantage of the framework to link together their physical and financial supply chains towards creating a more equitable, climate-sensitive global trading system.

“This growth happened in the markets where we wanted to have an impact, because the solution meets a real need,” says Nair, adding that the offering has led to ancillary discussions around other bank products beyond trade finance. One such example of this is the bank’s sustainable account, a solution that provides for clients’ intraday liquidity while funds are referenced against sustainable projects aligned with the bank’s green and sustainable product framework.

“Sustainability improvements in trade have an important multiplier effect,” says Nair. “When a corporate changes its trade practices, it has a snowball effect across the value chain and is secular and hence more impactful.”


Tackling documentary trade finance

Sustainability-linked supply chain finance has risen in popularity in recent years, as corporates seek to inject financial resilience into their supply chains while also motivating suppliers to improve on ESG. In December 2022, Standard Chartered launched the first such programme in the Middle East, in partnership with Majid Al Futtain Retail, the operator of the Carrefour supermarket franchise in the region. The programme, delivered as part of the bank’s sustainable trade finance framework, gives favourable financing terms to suppliers that meet sustainability criteria such as using energy-efficient equipment, employing fuel-efficient vehicles and minimising landfill waste.

Although sustainability metrics can be incorporated with relative ease into supply chain finance, the same is not true of documentary trade finance – and here, the breadth of the products within the bank’s proposition comes into its own.

“Sustainable supply chain finance is something that is already understood, primarily because the conversation thus far has been led by banks in the west around open account. The shape of trade in Asia, Africa and the Middle East is different, and the solutions needed are therefore distinct. This was an issue we dedicated a great deal of thought to when designing the framework,” says Nair.

“For example, a large proportion of trade in our footprint is letter of credit (LC) based,” he adds. “For an LC transaction to be converted to a sustainable transaction, all parties must be involved in changing business practices, and this involves cost and time: the client has to change their procurement process to include sustainability certificates, etc, the supplier needs to be audited by a certifying body, and there is also another financial institution at the other end of the transaction. It is a challenging proposition, but we continue to persevere.”

In 2022, the bank carried out its first green trade export LC programme under the sustainable goods pillar of its framework. The US$500mn transaction for agri-commodity producer ADM included third-party certifications from Round Table for Sustainable Soy, US Sustainable Soy Assurance Protocol, International Sustainability & Carbon Certification as well as the Better Cotton Initiative, and covered commodities including soybeans, oilseeds and cotton, with flows originating from Latin America, the US, and Australia to European markets.

“This transaction helps advance ADM’s widening efforts to expand sustainable farming practices and source sustainably produced goods,” says Nair. “It also showcases the bank’s ability to leverage its framework to identify a need and provide industry leading solutions to cater to that.”


Acknowledging the cost of better ESG performance in supply chains

In a recent report, titled The Sustainability Commitment Paradox, Standard Chartered polled 300 companies around the world on the obstacles they face in achieving sustainability goals. While most respondents said they see ESG and sustainability efforts as business opportunities, there was also a recognition that strong environmental and social stewardship could come at the expense of near-term profits, with around 70% of respondents saying that funding sustainability and ESG improvement programmes remains a barrier.

“Very often, pricing comes up as a topic of discussion. It isn’t simply a case of corporates seeking cheaper financing; the fact is that the effort of bringing together the commercial and procurement teams into financing discussions, and arranging all the required process changes or validations involves cost, and that needs to be incentivised in some way,” says Nair. “This can be challenging for banks due to the low pricing on trade finance. However, we are seeing a growing recognition among clients that sustainability is not only a means of accessing financing on superior terms.”

According to the research, most companies believe that sustainability creates the ability to attract and retain investment and bank financing, with 84% of companies with a turnover of over US$2bn saying that leadership on the issue positioned their firm as a longer-term investment option.


Expanding the reach of sustainable trade finance into the ecosystem

As one of the largest providers of trade services for the banking industry, Standard Chartered now plans to harness its role in connecting financial institutions (FIs) to the flow of goods and services globally to propagate more sustainable practices across the entire ecosystem.

“Our research predicts that by the end of this decade global exports will rise from US$17.4tn to US$29.7tn,” says Nair. “This upward trajectory means new prospects for more inclusive, equitable growth, and the network effect will be critical in bringing this to fruition.”

Building on the success of the sustainable trade finance proposition thus far, Standard Chartered is now developing an FI proposition that is clear, specific, measurable, and controllable, incentivising more banks to source sustainable assets, and enabling more corporates to access the products and solutions they need to advance their sustainability agendas.