As the sustainable finance market continues to grow and mature, BNP Paribas’ Ahmed Benraissi, head of strategic advisory, trade finance competence centre, and Nicolas Bouvier, head of sustainability transaction banking EMEA, explore the unique role trade and supply chain finance are playing in advancing a greener future for all.

 

Q: As momentum for sustainable financing continues to build, how can the industry maintain this trajectory while continuing to foster market integrity?

Benraissi: If we want the sustainable finance market to continue to thrive, the topic of integrity will be key. To tackle this efficiently, banks generally rely on recognised market practices and principles to ensure the information that is being disclosed and reported has a high level of transparency and accuracy. At BNP Paribas, for example, we have used the sustainability-linked loan principles and green loan principles published by the Loan Markets Association (LMA) to incorporate sustainability features into our in-scope trade and supply chain finance facilities.

Though we view this as a solid starting point, we believe there is a need to go further to properly understand the impact of the financing across the entire value chain. In this sense we consider sustainable use of proceeds to be a minimum requirement and go beyond this to get a holistic and quantifiable view of the positive impacts of the trade itself. This includes, but is not limited to, seeing if there are recognised standards or taxonomies attached to the goods or the underlying transaction and looking into whether the buyers and suppliers involved are socially and environmentally responsible. We believe factoring these additional insights into robust industry guidelines will both support the integrity of the market and help it to grow.

 

Q: Focusing in on trade and supply chain finance, what regulations and initiatives are shaping sustainability in the space?

 Bouvier: Regulatory developments play a key role today and will continue to do so going forward. At the European Union (EU) level, the Corporate Social Responsibility Directive (CSRD) is expected to set obligations for large companies and listed companies to regularly report on the actual or potential environmental and social impact of their activities, as well as their subsidiaries and business partners activities. Country-specific regulations, such as the ‘duty of care’ law in France, are also placing additional obligations on corporates.

In this way, the regulatory landscape is driving the requirement for corporates to both maintain an exhaustive set of data across their entire value chains and build up the capabilities needed to monitor progress. This has a knock-on effect on the banking sector – and there are two factors that we need to consider. The first is the risk component, as we will have to ensure all our financing is fully compliant with the regulations. The second is supporting our corporate clients in meeting the new criteria – for example, by helping them gather transparent and actionable data from their supply chains. We firmly believe that trade finance is in a unique position to facilitate that.

Benraissi: Industry collaboration also continues to play a role in shaping sustainability. One important initiative spearheaded by the ICC and that we are working on along with the wider trade industry, is the definition of standards for sustainable trade and trade finance. The objective is to come up with a common framework with replicable methodology that is capable of assessing the ESG impacts of a single trade transaction or drawdown. This is compared to what we have with the LMA guidelines today, which look at the trade facility in its entirety.

The majority of the work in creating a rigorous and balanced framework is already there, though we are currently running some final tests on certain sectors, including energy, automotive, agriculture and textiles. Once the framework is defined and commonly agreed upon, we believe this could be a breakthrough moment for the industry. To secure relevance, however, global adherence to the standards by industry stakeholders will be essential. If we can manage this, the framework will, in our view, significantly contribute to directing more support, financing and capital into activities that will have positive environmental and social impacts.

 

Q: What role can trade and supply chain finance play in the energy transition? And can more be done to provide support on this front?

Benraissi: The transition towards a low carbon economy has been a priority for BNP Paribas for over a decade, evolving from sector policies on fossil fuels and the scaling up of renewable energy, to the development of sustainable products and implementation of progressive 2025 climate targets for carbon-intensive sectors. Trade finance has been on every step of this journey. And it is no surprise. Global supply chains generate around 60% of all carbon emissions globally, but at the same time have a critical role to play in achieving the 17 Sustainable Development Goals of the United Nations. Meeting these ambitious goals by 2030 will require an estimated US$5tn a year of new investment – and the trade and supply chain finance, as the business responsible for moving these flows, will be instrumental in making this a reality.

Bouvier: Our approach to the energy transition is to focus on the entire value chain. Taking the example of electric vehicles, we not only account for the end product, but everything involved in that product’s lifecycle: the extraction of raw materials, the production of batteries, and the creation of charging stations and recycling facilities, among others. Even the most robust supply chains have their weaknesses, and if we want to be successful in driving meaningful change, we have to ensure we are supporting all the players that can make the transition a reality.

 

Q: Data sits at the heart of these conversations – acting as a key enabler. How can the industry ensure it has access to reliable and robust data?

Bouvier: Compared to other areas of the bank, trade finance is uniquely positioned when it comes to the provision of data. We have far greater clarity regarding counterparties in our agreements, be they suppliers, buyers or even the mode of transportation involved.

The question therefore becomes: how do we help corporate clients positively leverage this data from an ESG perspective? There is already an imperative for corporate buyers to determine the ESG friendliness of their suppliers. As their banking partners, we try to contribute towards this goal.

For example, in our supply chain financing programmes, where we finance suppliers on their flows with the large buyer, who is the client of the bank, we can exert a positive influence by giving preferential pricing if the supplier agrees to provide reliable data. In this way, we can add real value in helping to convince suppliers to grant this data.

 

Q: There is an emerging recognition that greater collaboration is needed to achieve ESG-related goals. How can this best be achieved?

Benraissi: We’re seeing a trend where various client departments, such as sourcing, finance, IT and sustainability, are joining up to help drive the creation of ESG solutions with their banks. Additionally, clients are increasingly seeking partnerships with sector peers to share best practices, as well as ESG specialists to access reliable data and sector-specific expertise.

Another area for collaboration is with multilateral development banks (MDBs). At the Cop28 summit, MDBs committed to increasing their support for climate action by enhancing reporting, scaling adaptation finance and mobilising private capital. In the context of higher interest rates, elevated debt levels and a focus on de-risking, the capital MDBs are putting to work is good news for the trade finance industry – and we are on hand to support these efforts.

Bouvier: At BNP Paribas, we have pioneered what we call the Low-Carbon Transition Group. This initiative brings together 250 experts from across the bank to provide their expertise in supporting clients through a targeted sustainability advisory. The goal is to keep ESG front and centre, whether from a commercial or risk standpoint.

Education here is critical, and we are also looking to democratise our ESG Training, for example, by giving regular presentations to our network’s trade specialists.