Banks have a strong role to play in promoting sustainability in trade through new lending criteria and product innovation, according to a Commerzbank report published today.
The report looks at five drivers of sustainable trade, including innovative finance and bank initiatives, which it identifies as “a key driver”, with increasingly stringent sustainability requirements becoming a condition for importers and exporters to secure financing.
Rüdiger Geis, head of product management, trade services and issues at Commerzbank, tells GTR: “There should be a business case for sustainability: You can make money and be more sustainable at the same time. We have to raise awareness in society and that’s what we are trying to do with that report.
“As a sector, banks have to create new products and follow the demand from corporates. We might not be able to give a better price for sustainable transactions, but longer tenors for example can help to enable companies to change towards a more sustainable way of doing business.”
According to the writers, there is a strong likelihood that this trend will continue in the next 10 to 15 years, with both OECD and non-OECD financial sectors seizing sustainable trade opportunities by embedding more detailed sustainability concerns into trade and project finance and assigning more of their portfolios for clean energy and technology trade. Non-OECD banks are also starting to base their sustainability norms on OECD best practice, though the pace of that catch-up remains to be determined.
“For a long time banks have been involved in commercial project finance of sustainable energy projects, often becoming partners in developing sustainable energy markets.”
“More recently, the banking sector (and financial institutions more generally) has been taking an even more proactive role on sustainability issues.”
“Most significantly, trade finance has started to focus increasingly on how goods and services are produced and delivered. Many banks today place a lot of pressure on themselves to check trade-related transactions for environmental, social, governance and ethical considerations. Such considerations have become part of day-to-day practice in many leading banks. They have become almost as important as assessing the credibility of the borrower,” Kai Preugschat, secretary general of the Berne Union, says in the report.
However, the report also points out that the lack of uniform metrics in sustainability reporting across banks could slow progress.
Other drivers include regulatory competition and protectionism (with a warning against ‘green protectionism’ measures that undermine competition on the basis of sustainability criteria), new patterns of global demand (and the idea that the growing emerging market middle class could embrace sustainability concepts faster than it did in developed markets due to the availability of information), supply chain trends (with global corporations being held responsible for their whole supply chain and therefore increasing engagement with suppliers), and alliances, standards and labels (including whether their proliferation could hamper their consolidation).
The report, produced in partnership with Oxford Analytica, is available here.