On Monday 13th November, representatives from banks involved in the global Trade Finance sector came together in London to attend the EMEA Trade Financial Institutions Forum, hosted by J.P. Morgan. Ignacio Gavilan, Director of Environmental Sustainability at The Consumer Goods Forum (CGF) was invited to participate in a panel discussion on Sustainable Trade. Representatives from the European Bank for Reconstruction and Development (EBRD) and consumer goods company Mondelēz International also participated in the discussion.
Ignacio provided an overview of the CGF’s key areas of focus in the sustainability field (including climate change, deforestation and responsible sourcing), and recent efforts by the consumer goods industry and the CGF to enhance sustainable trade practices, including Market Transformation initiatives, and Public/Private Partnerships.
Discussions at the panel session focused on:
- The role financial institutions involved in trade finance can play in helping to promote trade in more sustainable production
- Key sustainability priorities in the soft commodities sector
- The perspective of consumer goods businesses like Mondelēz International who are aiming to make sustainable trade practices mainstream
- How banks can best support clients with sustainability objectives when providing trade finance services
- The role banks can play in responsible finance practice as it extends to trade finance (balancing formal regulatory requirements, client expectations, societal expectations, and business costs)
- Practical experiences of applying environmental and social risk management in provision of trade finance services
- Key challenges: a lack of visibility of complex value chains, corporate complexity (e.g. multiple subsidiaries operating under a parent ‘umbrella’), constraints stemming from contractual obligations and financial considerations, availability of company resources to manage these issues
The session concluded with a discussion on the rationale for banks to play a more active role in facilitating more sustainable trade practices.
This event was useful in highlighting to providers of trade finance services the risks faced by their clients who operate in the soft commodities sector. For customer-facing consumer goods companies, the potential for reputational risk is heightened, given the focus placed on these issues by a number of activist groups and proliferation of campaigns based on the reach provided by social media platforms.
Clients operating in these sensitive sectors have explicitly indicated that support from business partners (such as banks) would be welcome in assisting consumer goods companies to manage the various risk issues more effectively. Providers of banking services are also regularly the target of similar campaigns, and effective partnering with clients to deliver enhanced risk identification and control should serve to also reduce reputational risks for banks.
Convergence of market participants toward well-recognised standards (such as that espoused by the Banking Environment Initiative’s Soft Commodities Compact) should serve to establish a clear signal regarding expectations of responsible practices within the various value chains. Such harmonisation should also serve to reduce the burden on participants at the base of the supply chain who may have to reconcile differing standards applied by customers further downstream.
Increased co-operation on delivery of responsible practices amongst all market participants is therefore key. This needs to include Governments who are able to positively influence market practices, and corporates domiciled in territories which historically have been less sensitised to sustainable development concepts.