Trade flows between emerging markets (EMs) and the rest of the world are becoming increasingly important to global economic development. Yet in order to ensure the longevity of these trade flows, banks and corporates must focus on developing sustainable trade policies rather than on immediate gain. Indeed, banks are significant stakeholders in society; due to their various functions as employers, taxpayers and business partners, they play a key role in the economy.
Yet corporate social responsibility should not stop at providing economic benefit. A responsible bank develops and practices business strategies that demonstrate a long-term commitment to sustainability. This sustainable approach should be embedded in all corporate activity, although this article will focus on two key areas of trade and project finance.
Indeed, taking sustainable trade seriously is vital, not only in order to remain competitive in the banking industry, but also because some resources are now becoming scarce and a lack of action could put trade at risk in future. If banks and businesses want to continue trading with each other in the long-term, action needs to be taken in the present day.
Take the commodity flows of palm oil, for instance. Palm oil is the world’s most important vegetable oil, accounting for one third of global consumption of vegetable oil. Global demand for this commodity is constantly increasing and leading to the destruction of tropical forests to make way for palm plantations, especially in Indonesia and Malaysia, but also increasingly in Africa and South America. These actions in turn lead to indigenous populations being dispossessed of their land and the destruction of rare animal and plant species.
This problem was one that Commerzbank was aware of early on and it entered into talks with the relevant markets, such as Singapore in 2007. Subsequently, a trade agreement for the supply of palm oil was jointly produced. During this process, the bank was guided by the Roundtable on Sustainable Palm Oil (RSPO) body regulations, which were established in order to put minimum standards in place for the sustainable production of palm oil.
Ruediger Geis, the bank’s senior manager of trade issues, explains why these regulations are important: “Any supplier with whom Commerzbank is involved must be a member of the RSPO body and must also provide certification proving that they have implemented the sustainability criteria into their production of palm oil. According to the agreement, any supplier who fails to meet the regulations is not eligible for financing. Certainly, this and other issues are firmly embedded in the bank’s processes”.
Project Finance: Renewables a Key Area
There is also a huge need for financing of sustainable projects in the emerging markets, such as Latin America. In Brazil, for example, the demand for energy for both domestic and industrial purposes is expected to have increased 60% by 2021. The country’s energy matrix is therefore likely to shift toward a higher concentration of renewable energies, most notably wind energy, small hydroelectric plants and biomass. Throughout Latin America, financial institutions (FIs) fulfil an essential role in lifting green growth projects off the ground by facilitating their access to financing options.
Indeed, Commerzbank has already financed two ‘green loans’ for Brazilian FIs together with the Inter-American Development Bank (IDB). The first took place in 2013 for Banco Itaú, and the second in March this year for Banco Pine. In the latter case Commerzbank and the IDB provided a
US$115m loan to Banco Pine
to expand access to financing for environmentally sustainable projects in Brazil. A third loan is also currently under negotiation.
Thomas Krieger, regional head of Latin America at Commerzbank, says that as a global partner for FIs in foreign trade and financing, the bank finances green loans in the region to add value to its product offering. “It is our priority to look for partners like the IDB that invest in a broader range of sustainability and development financing programmes. Commerzbank hopes to join forces with the IDB on similar deals in the future.”
Sustainability is not just important in the EMs however; it is also a concern closer to home. Indeed, Germany’s commitment to environmentally friendly initiatives is of great importance, with the implementation of the Energiewende (energy transition) policy reform – the shift away from nuclear and fossil-fuel energy sources towards renewable, whose key targets were published by the German government in September 2010.
The cost of this shift in policy is enormous and constitutes one of the government’s biggest challenges yet. Commerzbank is among the banks helping to define responses to this challenge and has been one of the world’s largest providers of funding for renewable energies for over 25 years, promoting and funding corporates and projects in the sector. Not only is this commitment benefiting the environment, it is creating jobs too. Certainly, green energy is the ultimate growth market and German technology enterprises are global leaders in this sector. In recent years these companies have created over 300,000 new jobs in Germany alone.
Those banks and businesses putting sustainable trade and projects at the top of their agenda are proving that it is possible to align sustainability with core business. With rapid globalisation, never have the opportunities been greater to take action to promote sustainable trade. The banks at the forefront of the sustainability drive are the ones looking beyond immediate gain, affecting positive change in their key markets to ensure that trade can continue and resources will be replenished in years to come.
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