Sustainable Trade Finance

TFG Sustainability Guide

Trade Finance Global / Sustainable Trade Finance

Sustainable Trade Finance

Welcome to the TFG Sustainable Trade Finance Hub, a content centre for market insights on ESG, sustainability, climate change, and decarbonisation initiatives in relation to trade finance.

International trade is an engine for economic growth and development, but it also accounts for some 80% of the world’s carbon emissions.

This hub aims to report on how companies are tackling the challenge of meeting the targets of the 2016 Paris Agreement and the 2020 Glasgow Agreement, which set a path for signatory countries to reduce greenhouse emissions.

Additionally, the hub will offer information on how companies are aligning with the United Nations (UN) 2030 Sustainable Development Goals (SDGs), and how sustainability priorities are being integrated into global supply chains.

Finally, a transition towards sustainable and inclusive trade will require standards and definitions, the latest of which you can also find here.

Featured ESG and trade insights

The role of banks in developing greener, more sustainable trade practices VIDEO | The role of banks in developing greener, more sustainable trade practices Trade Finance Global (TFG) spoke to president and CEO of BAFT at Sibos 2022 about the role that banking organisations can play in developing environment, social, governance (ESG) and sustainability best practices within global trade.
COP27 sees ICC unveil new standards for sustainable trade BREAKING: COP27 sees ICC unveil new standards for sustainable trade The International Chamber of Commerce (ICC) releases standards for sustainable trade, providing a framework that assesses the environmental sustainability of transactions. 
Into the depth—deep-tier supply chain finance as a driver for ESG development Into the depth—deep-tier supply chain finance as a driver for ESG development Deep-tier supply chain finance can be a powerful tool in the ESG toolkit––but implementing this innovative financing approach will require overcoming some key barriers.
Commerzbank on Standardisation- the key to sustainable trade finance Commerzbank on standardisation: the key to sustainable trade finance The world of trade is changing. Increasingly, the topic of environmental responsibility is taking centre stage, with discourse specifically circling around how the finance industry can implement sustainability measures more effectively. 
TFG Weekly Trade Briefing TFG Weekly Trade Briefing, 7th November 2022 Your Monday coffee briefing from TFG – VIDEO | Citi on navigating volatility and incorporating ESG finance principles into trade finance
Citi on navigating volatility and incorporating ESG finance principles into trade finance (3) VIDEO | Citi on navigating volatility and incorporating ESG finance principles into trade finance Citi has been working collaboratively with its institutional clients to incorporate more sustainability-based principles into their everyday operations; a movement taking place as the world increasingly moves towards a more sustainable, low-carbon economy.
The role of banks in developing greener, more sustainable trade practices VIDEO | The role of banks in developing greener, more sustainable trade practices Trade Finance Global (TFG) spoke to president and CEO of BAFT at Sibos 2022 about the role that banking organisations can play in developing environment, social, governance (ESG) and sustainability best practices within global trade.
Commerzbank on Standardisation- the key to sustainable trade finance Commerzbank on standardisation: the key to sustainable trade finance The world of trade is changing. Increasingly, the topic of environmental responsibility is taking centre stage, with discourse specifically circling around how the finance industry can implement sustainability measures more effectively. 
Can Europe be the first carbon-neutral continent Can Europe be the first carbon-neutral continent? The aim of the strategy – to “make Europe the first carbon-neutral continent” – was always ambitious. The question now is whether the events over the last 30 months have put the targets out of reach.
TFG Weekly Trade Briefing TFG Weekly Trade Briefing, 26th September 2022 Your weekly coffee briefing from TFG: E-rules for trade explained – URDTT, eURC, and eUCP
ICC report shows trade is critical to achieving sustainable development goals ICC report shows trade is critical to achieving sustainable development goals A new report from the International Chamber of Commerce (ICC) highlights how trade plays a pivotal role in ending poverty, driving economic growth, and mitigating climate change.
“Africa is the future”: all eyes turn to the youngest continent as the next frontier for growth “Africa is the future”: all eyes turn to the youngest continent as the next frontier for growth With commodities like food and energy resources scarcening in the face of climate change and the Ukraine-Russia conflict, all eyes are turning towards Africa as a possible solution.

Access trade, receivables and supply chain finance

We assist companies to access trade and receivables finance through our relationships with 270+ banks, funds and alternative finance houses.
Get started

Videos – Sustainability, green finance, and climate change

Podcasts – Sustainability and climate change for trade



Sustainable trade finance – Frequently asked questions (FAQs)

What is sustainable trade finance and what does it include?

In response to growing concerns over climate change and global warming, companies are increasingly looking at ways to minimise and mitigate their impact on the environment. 

Companies are now identifying environmental, social, or governance (ESG) risks associated with their business activities, such as the use of fossil fuels or other polluting goods and services within their supply chains.

By better understanding those risks and their potential reputational, credit, and regulatory impacts, companies can play an active role in creating sustainable trade and encouraging sustainable practices, and can assist in the global implementation of sustainability policies and standards.

Green loan

As the name suggests, a green loan is a loan that is taken out to finance green projects. 

The term ‘green loan’ was first introduced in March 2018, when the UK-based Loan Market Association (LMA) and several other industry bodies published a report known as ‘Green Loan Principles’

In the report, as green loan is defined as follows: “The fundamental determinant of a green loan is the utilisation of the loan proceeds for Green Projects (including other related and supporting expenditures, including R&D), which should be appropriately described in the finance documents and, if applicable, marketing materials. 

“All designated Green Projects should provide clear environmental benefits, which will be assessed, and where feasible, quantified, measured and reported by the borrower.”

As such, green projects could refer to those in sectors like renewable energy, waste reduction, and clean transportation, and can also cover related and supporting expenditures like research and development (R&D).

At present, one of the biggest challenges for the sustainable financing industry is its lack of common standards, and that’s why the LMA and its partner organisations published the ‘Green Loan Principles’, which attempts to set out market standards and guidelines.

Other industry bodies, such as the International Chamber of Commerce (ICC), are also currently in the process of introducing a draft framework of globally accepted standards and definitions for sustainable trade and trade finance, which would also cover green loans.   

Within the trade finance industry, major banks are already issuing green loans, and their numbers continue to grow. 

This year, for example, UKEF announced a £430 million green loan –  first-ever government-backed green transition loan to engineering and consultancy firm Wood to seize new clean growth export opportunitiesfirst. 

 

Sustainability-linked loan

In 2019, the LMA and several partner organisations published the ‘Sustainability Linked Loans Principles’, as a follow-up to the ‘Green Loan Principles’ mentioned above.

According to the 2019 report, sustainability-linked loans are defined as “loan instruments and/or contingent facilities (such as bonding lines, guarantee lines or letters of credit) which incentivise the borrower’s achievement of predetermined sustainability performance objectives”. 

In contrast to green loans, a sustainability-linked loan can be issued for non-green purposes, such as the financing of general business operations.

Specifically, a sustainability-linked loan could link conditions such as the term or price of a loan to the borrower’s performance against particular sustainability targets. 

As such, these targets are usually negotiated and agreed on by the borrower and the lender for each transaction.

And finally, it should also be noted that a loan can be structured using both green loan and sustainability-linked loan principles simultaneously.

 

Sustainable supply chain finance

Sustainable supply chain finance refers to financial practices and techniques that incentivise sustainable behaviours among parties to a transaction.

In practice, sustainable finance supply chain finance rewards suppliers for integrating ESG priorities into their supply chain.

 

Sustainable shipment letter of credit (SSLC)

A sustainable shipment letter of credit (SSLC) is a green financing product that was developed specifically for trade finance. 

It was first launched in 2014 by the International Finance Corporation (IFC) – which is part of World Bank Group – and the Banking the Banking Environment Initiative (BEI). 

The BEI is a group of global banks that aims to promote a more sustainable economic future.

It was convened in 2010 by the Cambridge Institute for Sustainability Leadership in the UK, with the shared goal of expanding the global trade of sustainably-sourced commodities.

Like a regular letter of credit, an SSLC allows for discounted financing for trade transactions, but unlike a regular letter of credit, it is only issued based on specific sustainability criteria.

To qualify for an SSLC, a supplier must provide evidence that their product meets internationally-recognised sustainability criteria, and that is usually done in the form of a sustainability stamp that is specific to the supplier’s industry.

For example, the first use of an SSLC was for a shipping of palm oil backed by a Roundtable on Sustainable Palm Oil (RSPO) certificate, which guarantees that no forests or communities were harmed during the extraction of the oil. 

What is green finance and why is it important?

Green finance is a broad term that typically refers to financial investments that contribute to sustainable development and environmental initiatives. Learn more about green finance here.

Green finance is important as it promotes and supports the flow of financial instruments and related services towards the development and implementation of sustainable business models, trade, and investments. 

More broadly, green finance facilitates the introduction of sustainable economic, environmental, and social policies. This includes the advancement of policies oriented towards the United Nations (UN) 2030 Sustainable Development Goals (SDGs), which seek to shift the focus of commercial activity from shareholders’ value creation (economic value) to stakeholders’ value creation (economic, environmental, and social value

 What are green finance products?

Green finance encompasses all the initiatives taken by private and public agents (e.g. businesses, banks, governments, international organisations, etc.) to develop, promote, implement, and support projects with sustainable environmental impacts through financial instruments.

Examples of green finance projects could include the promotion of renewable energies, energy efficiency, water sanitation, and environmental audits.

Green finance could also be used to reduce transportation and industrial pollution; to tackle climate change and deforestation; or to lower a company’s own carbon footprint.

What is the difference between sustainable finance and green finance?

The terms ‘sustainability’ and ‘ESG’ are often used interchangeably, including by business leaders and environmental campaigners. 

Sustainability and ESG are similar concepts, but in their current usage the main difference is that ESG often refers to specific metrics that can be quantified and measured, whereas sustainability does not.

Sustainability is more of an umbrella term that encompasses a company’s efforts to reduce the negative impacts of its business on the environment, such as by reducing or offsetting its carbon emissions.

Strategic Partners

ITFA LOGO
ICC LOGO
FCI Logo
IOEIT
SME

Our partner

Access trade, receivables and supply chain finance

We assist companies to access trade and receivables finance through our relationships with 270+ banks, funds and alternative finance houses.
Get started

Latest from COP26

16Nov

World Bank Group unveils international low-carbon hydrogen initiative at COP27

0 Comments

On November 15, Energy Day at COP27, the World Bank Group announced the Hydrogen for Development Partnership (H4D), a new… Read More →

15Nov

ADB launches just transition support platform, helping Asia-Pacific region reduce emissions

0 Comments

The Asian Development Bank (ADB) launched a just transition support platform on November 14. The initiative is part of ADB’s… Read More →

10Nov

VIDEO | The role of banks in developing greener, more sustainable trade practices

0 Comments

Trade Finance Global (TFG) spoke to president and CEO of BAFT at Sibos 2022 about the role that banking organisations… Read More →

10Nov

COP27: trade is essential to combating climate change

0 Comments

Tackling global warming cannot be successful without governments taking into account the important role of trade in meeting climate goals,… Read More →

08Nov

UKEF announces new debt solution to help developing countries in the face of climate shocks

0 Comments

UK Export Finance (UKEF) announced on Finance Day at COP27, November 8, that it will become the first export credit… Read More →

07Nov

Commerzbank on standardisation: the key to sustainable trade finance

0 Comments

The world of trade is changing. Increasingly, the topic of environmental responsibility is taking centre stage, with discourse specifically circling… Read More →

03Nov

US and UAE agree to invest $100bn into clean energy

0 Comments

In a strategic partnership between the UAE and the US, the two countries have signed the Partnership for Accelerating Clean… Read More →

Latest Sustainability News

23Nov

Sustainably-linked, revolving credit facility secured by Gunvor worth $1.6bn

0 Comments

Gunvor Group Ltd has signed a $1.645 billion sustainability-linked, multi-currency revolving credit facility (RCF) in favour of Gunvor International B.V…. Read More →

23Nov

UKEF announces new £4bn initiative to promote UK and Morrocco trade ties

0 Comments

UKEF financing will promote investment between the Morrocco and the UK by helping Moroccan buyers access support to deliver projects…. Read More →

21Nov

TFG Weekly Trade Briefing, 21st November 2022

0 Comments

Your Monday coffee briefing from TFG – PODCAST | Float or sink: BIMCO discusses eBL adoption, standards, interoperability… Read More →

14Nov

TFG Weekly Trade Briefing, 14th November 2022

0 Comments

Your Monday coffee briefing from TFG – Commerzbank on standardisation: the key to sustainable trade finance
Read More →

11Nov

$1.7bn in warehouse facility financing secured by AES for renewable energy projects

0 Comments

The AES Corporation’s US-based clean energy business announced on November 11 that it has entered into a $1.7 billion warehouse… Read More →

10Nov

VIDEO | The role of banks in developing greener, more sustainable trade practices

0 Comments

Trade Finance Global (TFG) spoke to president and CEO of BAFT at Sibos 2022 about the role that banking organisations… Read More →

09Nov

BREAKING: COP27 sees ICC unveil new standards for sustainable trade

0 Comments

The International Chamber of Commerce (ICC) releases standards for sustainable trade, providing a framework that assesses the environmental sustainability of… Read More →

09Nov

ADB and Indonesian government release study as a roadmap to carbon neutrality

0 Comments

On November 8, the Asian Development Bank (ADB) and the Indonesian government launched a scoping study to map the pathway… Read More →

08Nov

UKEF announces new debt solution to help developing countries in the face of climate shocks

0 Comments

UK Export Finance (UKEF) announced on Finance Day at COP27, November 8, that it will become the first export credit… Read More →

08Nov

Into the depth—deep-tier supply chain finance as a driver for ESG development

0 Comments

Deep-tier supply chain finance can be a powerful tool in the ESG toolkit––but implementing this innovative financing approach will require… Read More →

About the Author

Joana Fabiao is the Marketing Manager at Trade Finance Global (TFG).

She holds a BA in International Business from the University of Westminster, with a core focus on Global Economic Issues, International Financial Management and Organisational Behaviour. She also holds a certificate in Bloomberg Market Concepts.

Prior to working at TFG she worked as Junior Consultant in the Marketing and Events Department at Westminster Business Consultants, focusing on their social media campaigns, content and marketing strategy.

Back to Top