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While the imperative to address climate change remains universal, the standards required to achieve sustainability objectives are decidedly not. Western environmental, social, and governance (ESG) frameworks for sustainable financing prove fundamentally inadequate when applied to trade finance, particularly in emerging African economies.

The consequence is stark: Africa continues to lag on critical development metrics, including poverty alleviation and infrastructure development, as Western institutions pursue climate objectives through frameworks that create what we term “ESG colonialism”. This phenomenon occurs when inappropriate regulatory structures – even those initially voluntary, such as the ICC Principles for Sustainable Trade Finance (PSTF) – undermine rather than advance sustainable development in African contexts.

As ESG taxonomies proliferate and inevitably crystallise into binding regulation, Africa’s trade finance gap will only widen. Small and medium-sized enterprises (SMEs) and their trade financiers face insurmountable barriers and impossible compliance tests under frameworks designed for entirely different banking contexts.

A categorical error in regulatory design

The fundamental issue stems from applying regulatory frameworks developed for investment banking to the structurally different domain of trade finance. When the European Investment Bank (EIB) issued the world’s first green bond in 2007, followed by the World Bank’s landmark issuance in 2008 that created the blueprint for modern sustainable finance regulation, the framework was designed to certify that investments wouldn’t indirectly finance polluting industries.

This made sense for its intended purpose. Large banks making public climate commitments or investor pledges need robust monitoring to avoid financing environmentally detrimental activities. From this need for uniform, applicable standards and greenwashing prevention emerged comprehensive environmental frameworks, including the EU Taxonomy, the Net-Zero Banking Alliance (NZBA), and the Do No Significant Harm (DNSH) principle.

However, what functions effectively for investment banking sustainability simply doesn’t translate to trade finance. Consider the difference: an investment bank financing a five-year, $250 million infrastructure project can justify dedicated ESG teams and detailed emissions monitoring to meet sustainability standards. The business case supports the compliance burden.

Contrast this with a typical African trade finance transaction: perhaps a 60-day receivable financing denominated in shillings or kwacha, involving an SME as the underlying buyer, with a total transaction value of $10,000. The cost of ESG compliance alone – including expert consultants, third-party verifications, and technical requirements like satellite forest monitoring – could easily exceed the transaction value itself, even before considering that many African SMEs lack basic digital infrastructure.

Some trade finance does fit the investment banking mould: global commodities traders regularly arrange 180-day, multi-million dollar facilities amenable to similar monitoring. However, SME transactions – characteristically low-value, local, and fast-moving – face automatic exclusion regardless of their genuine environmental or developmental impact. SMEs constitute over 80% of African businesses but receive only 28% of bank-intermediated trade finance, with 58% of trade finance portfolios concentrated in banks’ top 10 clients. This structural exclusion explains the connection to Africa’s estimated $80-130 billion annual trade finance gap.

The echoes of history

This dynamic carries uncomfortable historical parallels. European institutions in distant capitals imposing detailed decrees for implementation in regions they scarcely understand describes both the 1885 Berlin Conference that partitioned Africa and the contemporary ESG regulatory landscape.

Europe’s extraction-focused engagement with Africa persisted for centuries, ending with decolonisation less than four decades ago. Commodities trading in Africa remains dominated by foreign firms controlling natural resources and reaping associated profits. When African countries attempt to boost domestic enterprise through foreign investment, they encounter a new form of colonialism: obtuse ESG mandates (the EU Taxonomy alone exceeds 550 pages excluding appendices) that make sustainable certification practically impossible, often resulting in complete exclusion from investment flows.

The alternative increasingly involves BRICS investment, particularly from Russia and China, which provides capital without impossible ESG requirements alongside its own conditions. By restricting investment that lacks formal environmental certification, European investors don’t reduce global emissions but rather impede economic development in the regions requiring it most.

Sustainability’s overlooked dimensions

Even when African trade finance transactions aren’t conventionally “green”, they remain, by the proper definition, sustainable. Five of the 17 United Nations Sustainable Development Goals (SDGs) address environmental issues directly (clean water and sanitation, affordable and clean energy, climate action, life below water, and life on land); the remaining 12 concern poverty, education, health, and similar developmental imperatives.

These non-environmental SDGs receive markedly less attention. From the perspective of regulators and bankers in Washington, Frankfurt, or Singapore, goals like “zero hunger” or “zero poverty” feel abstract and less urgent than environmental targets, particularly when institutions have made public net-zero commitments.

The Western financial community generally finds environmental emission reduction and green project financing a more comfortable territory than other sustainability dimensions, receiving less media focus. When tradeoffs arise between community impact or economic growth versus environmental cost – common in emerging economies still relying on fertilisers for agriculture and fossil fuels for energy – the banking community defaults to prioritising environmental considerations, often bound by net-zero commitments.

This prioritisation faces growing challenges even from former climate advocates. In October 2025, Bill Gates called for mitigation being “less of a priority in low-income countries” and urged reconsidering “restrictions around finance for some fossil fuels”, e.g., natural gas development in Sub-Saharan Africa. His stark cost-benefit analysis – vaccines save lives for $1,000 while emissions reduction costs millions per life saved – led him to conclude: ‘If given a choice between eradicating malaria and a tenth of a degree increase in warming, I’ll let the temperature go up 0.1 degree to get rid of malaria.’

The measurement challenge compounds this bias. While projects can track carbon dioxide (CO2) emissions to the gram, subjective goals like economic growth or positive community impact resist objective quantification. Well-intentioned standards designed to eliminate greenwashing inadvertently render non-trackable sustainability impacts meaningless, ultimately damaging African development.

Unilaterality is the culprit

This cycle is hardly novel. Well-intentioned Western regulations imposed elsewhere have constrained African growth for years. Consider Basel: standards intended to prevent 2008-style financial collapse instead created a massive African trade finance gap by rendering trade finance fundamentally unprofitable.

This occurred through two mechanisms. First, Africa possesses the planet’s lowest credit quality: 87-94% of rated African countries hold speculative grade (“junk status”) ratings, with only Botswana and Mauritius maintaining investment-grade ratings. Despite overwhelming evidence supporting trade finance’s value and relatively low default rates, Basel frameworks categorise African trade finance instruments as low-quality credit in low-quality jurisdictions. The increased regulatory risk-weighted asset capital and liquidity costs exceed the cost of equity for the banks, making African trade finance impossible to justify to investors.

Basel also mandates that all banks, regardless of jurisdiction, hold government bonds as high-quality liquid assets (HQLA). In Africa, government bonds yield up to 20% returns, allowing banks holding them to maintain liquidity while fulfilling regulatory obligations. Facing the choice between government bonds and trade finance, African banks rationally choose the former, perpetuating and growing the trade finance gap.

Well-meaning but misconceived Western intervention producing counterproductive impacts on African economies is a recurring pattern. To avoid replicating this with ESG, the international community must recognise the benefits of financing African trade even when its environmental impact appears ambiguous.

The Sevilla paradigm shift

The UN’s Sevilla Commitment, adopted in June 2025, represents a critical breakthrough. The Commitment categorically establishes that financing and supporting the productive capacities of SMEs in developing countries is inherently sustainable. This allows investors to bypass complex ESG standards and emissions tracking, declaring projects sustainable if they finance trade credit for emerging market SMEs – a vastly less daunting proposition.

While climate change mitigation broadly advances, progress on social and governance SDGs lags dramatically: 46% of Sub-Saharan Africans still live in extreme poverty, while one in three faces water scarcity. Achieving SDG targets by 2030 demands far greater attention to the latter two components of ESG.

For Africa, this requires inviting Africans to the table, empowering those with the deepest understanding of local needs to set standards and determine pathways forward. If prioritising emerging economy development requires temporarily emphasising poverty and hunger over sustainability commitments, that decision should rest with African countries themselves – or at a minimum include African banks and institutions as authoritative voices in the discussion.

The alternative to meaningful African participation in standard-setting remains unchanged from historical patterns: exclusion from decision-making processes that profoundly shape African economic futures. The stakes are too high for business as usual.