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

Using Optical Character Recognition to streamline international trade One of the difficulties related to international trade is the large volume of paper documents that make up much of the information flow between the different parties, including various documents such as invoices, bills of lading, certificates of origin, and customs declarations. 
The growing legal imperative for human rights due diligence The growing legal imperative for human rights due diligence Economically disadvantaged people have been trafficked into countries as sources of “cheap” labour throughout history. The International Labour Organization estimates more than 50 million people around the world are trapped in some form of modern slavery.
Commodity Trading Week 2023 From food crises to sustainability: Navigating the commodity trade finance space in 2023 Just over two weeks ago, Commodity Trading Week gathered over 300 experts from across the world, tackling some of the most pertinent questions and challenges in the industry. TFG summarises the key findings.
How fast fashion supply chains can use technology to meet ESG goals How fast fashion supply chains can use technology to meet ESG goals Fast fashion brands are looking at technology to help improve supply chain sustainability and meet their environmental, social, and governance (ESG) targets.
UK under the spotlight – C4DTI on how to avoid “pilot exhaustion” VIDEO | UK under the spotlight – C4DTI on how to avoid “pilot exhaustion” At the ICC United Kingdom and C4DTI, Trade Finance Global’s (TFG) Deepesh Patel spoke with Nick Davies, Director of the ICC’s United Kingdom C4DTI, to learn more about their role in accelerating the adoption of digital trade.
BCR VIDEO | Managing the implementation of trade finance as an asset class, is ESG the answer? At the 2023 ITFA Trade and Investment Forum in London, Trade Finance Global spoke with Alexander Malaket, president, OPUS Advisory Services, to learn more about trade finance as an asset class, the promise of a standardised rating system, and the role of ESG as a catalyst for investment
Commodity Trading Week 2023 From food crises to sustainability: Navigating the commodity trade finance space in 2023 Just over two weeks ago, Commodity Trading Week gathered over 300 experts from across the world, tackling some of the most pertinent questions and challenges in the industry. TFG summarises the key findings.
Green power politics in North African countries: Continuity or change? In 2023, environmental and climate issues will again be at the top of the policy agenda in the Middle East and North Africa. The upcoming COP28 climate conference in Dubai and the rapid growth in the renewables sector in Egypt and North Africa both point to the growing power of MENA states within global climate politics.
Carbon neutrality in commodity trading: A need for standardisation Carbon neutrality in commodity trading: A need for standardisation While consensus and recognised standards exist for carbon footprint measurement and reporting, carbon offsetting and the quality of underlying projects are still subject to debate.
Foreword - Sailing into 2023: Navigating the new year Foreword – Sailing into 2023: Navigating the new year ‘Permacrisis’ was crowned word of the year by the editors of the Collins English Dictionary at the end of 2022, defined as “an extended period of instability and insecurity”. It seems an appropriate term to describe the state of global trade, finance, and supply chains as we enter 2023.
Shipping Shipping in 2023: sustainability changes on the horizon Cargo transportation is enjoying rapid growth due to increased globalisation and online ordering. The shipping industry accounts for a vast percentage of global trade, so finding ways to make it more sustainable is crucial. 
'22 in 22 minutes PODCAST | ‘22 in 22 minutes There is little doubt that 2022 has been an unprecedented year and for better or for worse, there has been a lot that has happened in the trade, treasury, payments and supply chain spaces.

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

19May

From food crises to sustainability: Navigating the commodity trade finance space in 2023

0 Comments

Just over two weeks ago, Commodity Trading Week gathered over 300 experts from across the world, tackling some of the… Read More →

17May

UAE becomes seventh country to sign WTO Fisheries Subsidies

0 Comments

On 16 May, the United Arab Emirates (UAE) became the seventh WTO member to sign the instrument of acceptance for… Read More →

02May

UNCTAD Trade Forum 2023: Building inclusive and resilient trading systems

0 Comments

UNCTAD will host the third UN Trade Forum on 8 and 9 May 2023 to identify trade policies that can… Read More →

24Apr

Green power politics in North African countries: Continuity or change?

0 Comments

In 2023, environmental and climate issues will again be at the top of the policy agenda in the Middle East… Read More →

20Apr

International organisations launch Action on Climate and Trade initiative for developing economies

0 Comments

Today, the World Economic Forum (WEF), the World Trade Organization (WTO) Secretariat and the World Bank Group announced their pilot… Read More →

12Apr

United States cuts unsustainable fishing subsidies

0 Comments

On Wednesday, the United States announced that it ratified a deal to cut subsidies contributing to overfishing, becoming the first… Read More →

07Apr

OECD countries reach historic agreement to modernize export credit support for climate-friendly and green projects

0 Comments

A modernisation package agreed in principle by participants will specifically allow countries to offer greater support for green projects while… Read More →

Latest Sustainability News

02Jun

Using Optical Character Recognition to streamline international trade

0 Comments

One of the difficulties related to international trade is the large volume of paper documents that make up much of… Read More →

29May

TFG Weekly Trade Briefing, 29th May 2023

0 Comments

Your Monday morning coffee briefing from TFG, 8th May 2023… Read More →

24May

Australian and Indian Prime Ministers seek to expand regional ties

0 Comments

Australian Prime Minister Anthony Albanese and Indian Prime Minister, Narendra Modi met in Sydney to discuss regional security and economic… Read More →

23May

ITFA to release new industry study on ESG framework

0 Comments

The existing regulatory frameworks overseeing sustainability reporting in the Financial Institutions sector are giving rise to numerous unexpected outcomes that… Read More →

23May

The growing legal imperative for human rights due diligence

0 Comments

Economically disadvantaged people have been trafficked into countries as sources of “cheap” labour throughout history. The International Labour Organization… Read More →

19May

From food crises to sustainability: Navigating the commodity trade finance space in 2023

0 Comments

Just over two weeks ago, Commodity Trading Week gathered over 300 experts from across the world, tackling some of the… Read More →

18May

How fast fashion supply chains can use technology to meet ESG goals

0 Comments

Fast fashion brands are looking at technology to help improve supply chain sustainability and meet their environmental, social, and governance… Read More →

17May

UAE becomes seventh country to sign WTO Fisheries Subsidies

0 Comments

On 16 May, the United Arab Emirates (UAE) became the seventh WTO member to sign the instrument of acceptance for… Read More →

16May

ING: synthetic fuels a potential game-changer for net-zero goals

0 Comments

As the global demand for shipping continues to rise, the imperative for the industry to embrace sustainability becomes increasingly urgent… Read More →

10May

VIDEO | UK under the spotlight – C4DTI on how to avoid “pilot exhaustion”

0 Comments

At the ICC United Kingdom and C4DTI, Trade Finance Global’s (TFG) Deepesh Patel spoke with Nick Davies, Director of the… 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