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The International Chamber of Commerce (ICC) is launching a pilot program to test a framework for grading the sustainability profile of individual trade transactions.
The program, which is expected to formally launch at the United Nations climate summit (“COP27”) in November, calls on banks, corporates, and technology companies to participate.
After completing a global consultation earlier in the year in preparation for its development, the ICC is now prepared to pragmatically test the framework in high-volume transaction environments.
This follows the ICC’s publication of its global framework for sustainable trade and trade finance definitions in November 2021.
“Our aim is to deliver a system capable of rewarding sustainable practices by companies across global value chains while eliminating risks of greenwashing,” Raelene Martin, head of sustainability at the ICC, said.
“Given the urgency of ensuring that trade and associated financing can contribute actively to meeting global sustainability goals, we have placed an absolute emphasis in delivering an initial industry framework that is immediately workable – while, crucially, integrating robust and recognised sustainability standards.”
The organisation has decided to focus this phase one of the pilot on the textile industry.
Banks and corporates that are selected to participate will be tasked with running assessments on at least 20 transactions or 5 counter-parties, recording assessment outcomes in an ICC template, providing feedback at the end of the pilot, joining regular working group calls to help navigate the pilot and provide updates on process.
“We see it as a vital step to carefully test the framework in partnership with banks, corporates, and fintechs to understand its utility and practicality in the real world,” Martin said.
“The findings of these pilots will feed directly into the elaboration of a broader framework which we hope will be capable of being applied across a wide range of sectors and industries.”
The five components of sustainable trade
The ICC sustainability framework strives to take a holistic view of the trade transaction to measure its sustainable impact. To that end, the organisation defines sustainable trade as a trade flow that:
- Originates from an environmentally sustainable and socio-economically responsible supplier,
- Is delivered to an environmentally sustainable and socio-economically responsible buyer,
- Consists of goods or services that have been produced in an environmentally sustainable and socio-economically responsible way (this refers to the finished good or service and the primary materials and processes used to manufacture or provide it),
- Is transported by means that are environmentally sustainable and socioeconomically responsible, and
- Is intended for an environmentally sustainable and socio-economically responsible purpose.
While it is an important element, the ICC has opted to temporarily exclude assessing transportation under the framework since it lacks maturity compared to other industries and may hinder the efficacy of the pilot.
Urgent climate action required
Given the urgency of the situation, the ICC acknowledges the need to implement a solution in the immediate term.
This means that the developed framework will only leverage data that is readily available today, rather than data that will take time to collect, analyse, and understand.
The framework is also designed to be simple enough that pilot organisations with available capacity can implement it without hassle.
While these simplicity and data availability constraints may open the framework to criticism that it does not fully address the issues at hand – they are necessary steps that allow the ICC to begin taking action today.
There will be plenty of time to iterate on the process in the coming months and years – for now, simply starting the journey is the top priority.
When it comes to taking measures to protect the state of the planet, we cannot let perfection be the enemy of the good.