The International Chamber of Commerce (ICC) has unveiled a comprehensive framework for sustainable trade finance, marking a watershed moment in the industry’s efforts to channel capital towards environmentally and socially responsible trading activities.
The ICC Principles for Sustainable Trade Finance (PSTF), developed in collaboration with Boston Consulting Group and leading financial institutions, addresses a crucial gap in the market: the challenge of applying existing green finance frameworks to trade finance products.
Trade finance has long been a poor relation in sustainable finance, largely because its ‘flow’ nature makes it difficult to track the end use of funds. These principles finally give us a common language and methodology.
The framework
At the heart of the framework are the Principles for Green Trade Finance (PGTF), which provide banks with detailed guidelines for assessing whether trade finance products qualify as “green”. The principles examine both the purpose of transactions and the nature of goods being financed in a dual-assessment approach
The framework acknowledges a particular challenge in trade finance: often, the intended use of goods isn’t known at the point of origination. Therefore, the PGTF allows for assessment based on either the transaction’s purpose or the goods themselves, depending on the available information.
“This flexibility, combined with robust safeguards, is what makes these principles practical”, said James Thompson, sustainable finance director at HSBC. “We can now evaluate trade finance products consistently, whether we’re looking at a letter of credit for solar panels or supply chain finance for sustainable agriculture”.
The framework also includes guidance on sustainability-linked trade finance and supply chain finance, aligning with existing Loan Market Association principles while adding specific considerations for trade products. A gap in the framework is the consideration of social factors, but the ICC has signalled its intention to develop dedicated principles for social trade finance in the near future.
To support implementation, the ICC is providing banks with practical tools, including a library of approved sustainability credentials and code-mapping tables to enable automation. The organisation has also promised ongoing updates to reflect evolving industry norms and the increasing availability of sustainable credentials.
Because practical tools and data resources have been provided, the PSTF is more than an arbitrary set of principles, gathering dust and inapplicable to those without a strong foundation of capital.
—
The launch coincides with growing regulatory pressure on banks to demonstrate their contribution to sustainability goals. The European Central Bank’s climate stress tests and the UK’s green taxonomy developments have highlighted the need for standardised approaches to assessing sustainability in financial products.
The ICC will host an online launch event on 29 October, where industry participants can engage directly with the framework’s authors. A consultation period will follow, allowing stakeholders to provide feedback before the principles are finalised later this year.
The framework’s release comes at a critical juncture, as the financial sector grapples with its role in addressing climate change and social inequality. With trade finance representing over $5 trillion in annual transactions, the potential impact of these principles on directing capital towards sustainable activities could be substantial.
