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Initial feedback on the International Chamber of Commerce’s (ICC) sustainability standards pilot has revealed a broadly positive response, but complexity, automation and incentives for corporates to supply data still pose a challenge.

The pilot’s first iteration – launched during the UN’s Climate Change Conference (Cop27) in November 2022 – involved more than 30 trade banks over a four- to five-month period, in addition to corporates and fintechs.

The ICC piloted the application of the framework for trade transactions in the textiles sector, with the aim of testing it in a real-world setting and gaining a better understanding of how it should be implemented practically.

“While feedback was largely positive in terms of the intention, scope and framework methodology, the majority of participants had concerns around the complexity of the assessment and incentives for participation,” the ICC says.

The framework measures five components of a transaction – goods, seller, buyer, transportation and purpose – against environmental and socio-economic factors.

It aims to be aligned with the Paris Agreement of limiting warming to 1.5°C above pre-industrial levels and the UN’s Sustainable Development Goals.

The ICC says “the majority of participants had concerns around the complexity of the assessment and incentives for participation”, which it will address in wave 2.

Many corporates felt they lacked incentives – namely, reduced financing costs – to give their banks sustainability data.

The ICC notes that “there is a belief that over the medium term it will no longer be sustainable to offer reduced fees for sustainable transactions”, meaning wave 2 will need to better articulate how the framework can offer other benefits to corporates.

Feedback flagged the current manual process as “time-consuming and labour-intensive”, and the ICC says it will “continue to look for solutions and partnerships to help automate large elements of the framework”.

Apprehension over accusations of greenwashing also emerged, as banks and corporates asked for “more specific guidance on how to evidence their alignment with ICC-approved standards”, which the ICC adds will be clarified in the second iteration of the pilot.

Other points raised by participants include the possibility of the framework covering all trade and supply chain finance products, rather than just short-term products, to avoid trade divisions having to apply multiple methodologies. The ICC says it thinks this is possible “with some minor adjustments and clarifications”.

The purpose component – for transactions that might not involve sustainable goods, but are intended to meet sustainable goals, like transition finance to fund clean energy – will be reconsidered, as in practice it was difficult to prove that “textiles transactions had a primary sustainable purpose”.

The ICC says it will also consider a sector-by-sector approach when it comes to sustainability criteria, after many environmental standards in the textiles sector did not meet the ICC’s requirements, being geared towards water management and pollution reduction rather than climate.

Next steps include incorporating ESG scoring mechanisms and applying a graded scale that shows the degree of sustainability of transaction components to give an overall sustainability score.

The goal is also to broaden the framework’s scope to cover additional sectors, such as energy, automotive and agriculture, as well as including transportation.

The ICC says it will now start work on the second iteration of the pilot and aims to launch wave 2 at Cop28, held in November and December this year in Dubai.

The organisation adds that new sectors will also launch for testing from late summer, in order to “help maintain momentum” and enable participants to continue testing the framework with clients.

Another recent industry survey on the topic of sustainability, published by the International Trade and Forfaiting Association, also flagged that there is a lack of favourable capital treatment for sustainable finance, with no way of recognising that compliance reduces reputational and consumer risk.