Yet as global challenges increasingly threatening vital resources, businesses large and small have a duty to review the sustainability of their operations. Therefore, as the sustainable trade agenda gathers pace, the way in which global trade is conducted is set to change significantly over the next 10-15 years.
Climate change, depletion of natural resources, population growth, human rights abuses and global conflicts, are just a handful of the issues that currently threaten the future viability of international trade.
Yet while there is growing consensus that sustainability is an important feature of corporate life and international trade, a wide gap still exists between acknowledging these problems and acting upon them.
This possibly stems from the fact that there is not yet global agreement on what constitutes sustainable business practices. Such confusion may constrain corporate action to some extent and will almost certainly create challenges for governments wanting to put relevant regulation in place.
Moreover, as most companies now compete in an increasingly fierce and global market, many companies’ short-term survival and profitability will likely take precedence over long-term sustainable strategy. The challenge, therefore, is to overcome the tension between short-term gain and long-term sustainable practices.
In this respect, given the significant influence that financing conditions can have on corporate conduct, banks will have an increasingly important role to play in driving sustainable trade forward among corporates.
Five Factors Shaping the Future of Sustainable Trade
Many companies – particularly large corporations – adopted the business case for sustainability within their operations some years ago and supply chains and are becoming more proactive.
Corporations have embraced sustainability by not only ensuring integrity in their business, but also by improving their value proposition by integrating sustainability issues into core business strategy. This approach sees corporate sustainability as a vector for reducing cost and waste while improving overall value. Understandably, businesses are more likely to engage in sustainable trade when the immediate economic returns of such behaviour are apparent.
Therefore, as more companies embrace the sustainable development agenda, significant changes could take place within global trade over the next 10-15 years. In this respect, five key factors can help explain what will be the main drivers.
The first relates to how the regulatory environment drives sustainability. The leading question here is how successfully non-Organisation for Economic Co-operation and Development (OECD) countries will be able to adopt sustainable trade practices over the next decade. Currently they lag behind OECD countries, which are further ahead in developing regulation in this area.
A second driver of sustainable trade will be the increase in global demand for tradable products and services as a global middle class emerges. With such vast urban population growth, a greater focus on sustainability is likely to ensure that global demand for goods and services continues to be met.
Thirdly, as supply chains become increasingly global in nature, companies will need to become more alert to potential sustainability-related risks in their supply chains with a greater emphasis on transparency. Indeed, sustainability aspects of supply chain management are increasingly seen as integral to cost reduction, efficiency, commercial agility and risk management.
In addition, between now and 2030 more collaborative efforts to solve sustainable trade problems are likely to take place between the public, private and civic sector. As such, the role of alliances, standards and labels will be an additional driver shaping the development of global trade.
Finally, the banking sector’s role in supporting corporates on a sustainable path will also be a factor. As the entities that finance corporate activity, banks have a significant amount of influence as they can make sustainability performance a prerequisite for obtaining finance.
Driving Corporate Sustainability
Banks and other corporate finance providers can encourage the uptake of sustainable business practices and strategies, not only through financing sustainable projects and technologies, but also by applying sustainable criteria for lending and incorporating non-financial factors into decision-making.
Yet there is a widespread misconception that banks are taking on this role just to improve their reputations. While this certainly plays a part, there are a number of reasons why they are getting more deeply involved in the sustainable trade push.
Firstly, regulation requiring banks to adhere to certain sustainable practices is having an impact and this trend will gather strength. Secondly, and perhaps most significantly, is sustainability risk management – failure to anticipate and manage this risk on the part of corporate clients can have multiple consequences, including financial, legal and reputational.
In addition, banks and non-bank lenders are also finding opportunities to develop new products and services, such as financing renewable energies. This greater focus on sustainability issues in banking practices is likely to have a significant effect, shifting lending practices.
Commerzbank introduced sustainable lending criteria many years ago and the environmental, social and governance (ESG) risk management department cooperates closely with other business units to check every trade-related transaction received for environmental, social and ethical risks. In extreme cases, where the sustainability criteria are not met, these checks may lead to the rejection of a transaction or termination of a business relationship.
While there is a clear business case for sustainability among both corporates and lenders to corporates and momentum is gathering behind this trend, sustainable trade is still in its infancy. As such, in order to drive sustainability initiatives forward more collaboration will be necessary among banks, companies, governments, policy makers, non-governmental organisations and academics in order to establish and fulfil basic sustainability standards.
For more about the trends driving sustainable trade, a recent Commerzbank-Oxford Analytica report entitled Five Drivers of Sustainable Trade may be accessed here.
We have been witness to a series of significant security events recently around payment execution, from Leoni in Germany through to ABB in South Korea and SWIFT in Bangladesh to name a few of the major headlines.
When Mark Cuban declared that "Data is the new gold" he highlighted why information is possibly the most valuable asset a business has. APIs are the unsung heroes that make it possible to extract that value.
The revised Payment Services Directive regulation, regarded as one of the most disruptive in Europe’s financial services sector, will begin to make an impact on January 13, 2018.
The cost of compliance efforts for banks has increased exponentially in recent years. This is especially true for those banks that are active in the global trade finance domain, where the overwhelming expectation is for compliance requirements to become even more complex, strict and challenging over time.