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Trade data and analytics provider Coriolis Technologies has set up a working group to drive the adoption of standardised ESG scoring criteria, tools and methodologies for the trade and trade finance industry.

The Kosmos consortium is made up of 25 banks, insurers and professional bodies, including the Asian Development Bank, AIG, Boston Consulting Group, Commerzbank, CIMB, Credit Suisse, Deutsche Bank, Enigio, the International Chamber of Commerce (ICC), the Institute of Export & International Trade, the International Trade Centre, the International Trade and Forfaiting Association (ITFA), Lloyds Bank, MineHub, NatWest, Santander, SMBC and the Trade Advisory Network.

Together, the group has committed to develop and implement Coriolis Technologies’ Kosmos product, a “for the industry by the industry” ESG monitoring and passporting tool for global trade flows – thereby enabling trade financiers and exporters to tackle the longstanding challenge of tracking and proving compliance with sustainability standards.

“Whilst ESG standards – that is, what we are measuring – abound, there are very few tools to allow us to measure how those standards are being satisfied accurately and objectively,” says Johanna Wissing, head of ESG at ITFA. “The technology proposed by Kosmos is the best opportunity the market has seen so far to overcome this critical challenge to ESG investment, to avoid greenwashing and to ensure that the efforts and funds of banks and other responsible participants are properly directed and make the biggest contribution to achieving the important objectives that underlie these standards.”

Speaking to GTR, Wissing – along with fellow working group members Rebecca Harding, CEO of Coriolis Technologies, Gwynne Master, head of working capital solutions at Lloyds, Merisa Lee Gimpel, head of working capital innovation at Lloyds, and Sean Edwards, ITFA chairman – outline the thinking behind the initiative.

GTR: How does the Kosmos tool work?

Harding: The one thing that that every single trade transaction has is a product or a service. At the transactions level, because we know about the product or service, we know about the buyer, we know about the seller, and we know about the distance travelled by the goods, we can measure sustainability in trade, because there already concordances out there that match products to sustainable development goals and to the EU taxonomy.

GTR: What is the impetus for setting up the working group?

Master: Our customers have been very hard hit by two challenges. The first one is severe disruption, and not just because of Covid. There have been a lot of factors that have contributed to their supply chain risk. So the first part of it is about helping clients understand and manage the risks across their supply chain.

The second thing is around the overwhelming need to get to net zero, from a cost of capital perspective, from a reputational standpoint and because our clients’ buyers, suppliers and customers are demanding it. As bankers, we have a role to play in terms of the way we lend, and the way we counsel our clients. Supply chain risk and sustainability fit together, particularly given that 80% of a client’s carbon footprint can sit within their supply chain.

Lee Gimpel: Within the sustainable finance space, a lot has been done at the company level around direct emissions and so on, but a lot less is being done at the actual trade level. This is the gap we are trying to address: on that transactional level, what’s being bought, and what’s being sold? With Kosmos, we can look at our entire trade book, and how the value chains in there relate to environmental metrics, or the SDGs. If we can measure that, we can measure success in the transition to sustainable trade, and we can also identify where to direct our sustainable trade finance initiatives.

Wissing: The Kosmos working group brings together practitioners – the people that can really move this forward. Within the ITFA ESG committee, we are promoting and advocating this work, as well as communicating it to other important industry bodies, such as the ICC and Baft, since we all have common goals, and we don’t need to duplicate our efforts. We want to create that network effect in order to truly make a difference.

Harding: This is a once-in-a-lifetime opportunity to bring together the finance and business communities to achieve sustainable trade in every sense of the word. Without shared standards, without effective automated and digital systems and without the independence that comes from everyone working together, the world will never achieve its sustainability objectives. The Kosmos working group is testimony to the fact that so many banks and international organisations genuinely want to drive change and harness their mechanisms for doing just that.

GTR: How does Kosmos fit with the ICC’s proposed standardised framework and assessment methodology to qualify the sustainability profile of trade transactions?

Harding: That framework means that we’re already pushing at an open door. Essentially, through Kosmos we are building the technology and the implementation platform for the ICC framework.

Coriolis is a data aggregator. The more data we have, the more we can do. There’s a very real objective here, which is to get everybody speaking the same language around sustainable development goals, around CO2, around technology and digitalisation, and how we join up all of those agendas.

We have to do it together, but we have to start with what we know, and not what we don’t know. It’s fair to say that at the moment, there’s an awful lot we don’t know. But what we do know is enough to start the process and start changing the way in which we measure sustainability and sustainable trade finance transactions. We know enough to be able to make a significant difference. And over the next year, we will begin to know a lot more with the Kosmos working group.

Lee Gimpel: It’s a practical application of some of the theory that’s going to be coming out of the ICC working group. The ICC is putting forward what needs to be measured, and Kosmos is providing the tools to actually achieve this.

Edwards: What Kosmos does is enables banks and corporates to make certain declarations about their ESG performance in trade and then back them up with irrefutable proof. Many ITFA member banks not only originate trade finance transactions but also distribute them in the secondary market. Tagging transactions as ESG might have a financial implication, such as a change in the margin, for example, and having a tool like Kosmos means that we as an industry can avoid the risk of greenwashing.

GTR: What needs to happen for Kosmos to reach scale?

Harding: This working group is about getting together a group of people who genuinely want to make a difference. Having organisations such as ITFA and Lloyds involved means that we’re sending out a signal to the marketplace that enough is enough.

We’ve matched data from all of the global trade flows around the world to positive and negative impacts on the Sustainable Development Goals, and we have found that only one dollar in every five is associated with a positive sustainability impact. Because we know this, we can set ourselves targets. This gives us a defined distance to travel, and by bringing everyone together, the trade finance sector has the opportunity to make a difference. Parts of it are implementable already, and as we evolve over the course of the following year and beyond, Kosmos will become a go-to benchmark.

Master: We’ve got to get the client in the room and we’ve got to test it. We’ve got to activate the use cases. This is still nascent, but there’s a lot of energy in the room and it’s absolutely moving in the right direction.

Lee Gimpel: We are engaging clients right now, because we have to have them there when we’re developing the solutions, so we’re definitely going beyond just talk to looking at how we turn this into something that our clients can use.