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

Interview Steven Beck, head of trade finance at Asian Development Bank, on global supply chains, trade digitisation, sustainability Interview: Steven Beck, head of trade finance at Asian Development Bank, on global supply chains, trade digitisation, sustainability TFG interviewed Steven Beck, head of trade and supply chain finance at Asian Development Bank (ADB), to discuss how the trade and supply chain finance landscape has changed as a result of the COVID-19 pandemic. 
Electronic trade documents coming to the UK: Enigio looks at the impact of digital legislation on bills of exchange During the Queen’s Speech on 10 May 2022, Prince Charles, standing in for the Queen, announced that the Electronic Trade Documents Bill among the list of legislation that the Government intends to pursue in the upcoming parliamentary session.
The promises of the World Trade Organization The promises of the World Trade Organization Over three-quarters of merchandise exports by the least-developed countries (LDCs) are primary goods.
This places them at a disadvantage in international trade since manufactured goods have a higher value than primary goods.
Trade on knife's edge RELEASED: Trade Finance Talks – Trade on a knife’s edge The latest issue of TFG’s Trade Finance Talks, ‘Trade on a knife’s edge’, is out now!
TFG Weekly Trade Briefing TFG Weekly Trade Briefing, 3rd May 2022 Your morning coffee briefing from TFG – Gas from the past: political history haunts energy supply chains amid Russian sanctions
Editors note- commodity trade finance on the knife’s edge FINAL Editors note: commodity trade finance on the knife’s edge TFG’s Deepesh Patel highlights the key themes in commodity trade finance for commodity trading week in London.
Climate change, data, and money - City Week 2022 Climate change, data, and money – City Week 2022 Here is a quick rundown of City Week 2022’s main themes covered throughout the first of this three-day conference. 
The long game assessing the impact of UN sustainable development goals on commodity sectors The long game: Assessing the impact of UN Sustainable Development Goals (SDGs) on commodity sectors Since the United Nations (UN) adopted the 2030 Agenda for Sustainable Development, industries have started planning for more sustainable practices
Irene Gambelli SACE Trade Finance Global Role of ECAs in economic recovery from COVID-19 and green transition The role of ECAs in the global economic recovery and green transition – The view from SACE In this article, SACE’s Irene Gambelli discusses the support provided by Italy’s export credit agency to SMEs during and after the pandemic, with an increasing focus on green finance
COP26 with Veridapt CEO David Thambiratnam - Finance more, pollute COP26 with Veridapt CEO David Thambiratnam – Finance more, pollute less Lenders are being asked to allocate more capital than ever to manage risks and seize opportunities, as the world strives to achieve net zero carbon emissions by 2050.
2021 Year in Review 2021 – A Year in Review with Trade Finance Global As the clocks struck midnight, we looked back at over 700 articles, handpicking our favourite stories that made the headlines in 2021
COP26 Rishi Sunak, UK COP26 wrap-up: UK vows to become world’s first ‘net zero-aligned financial centre’ Over the last two weeks, the UK has been at the forefront of some of the biggest announcements to come out of COP26.

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


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

27Apr

Climate change, data, and money – City Week 2022

0 Comments

Here is a quick rundown of City Week 2022’s main themes covered throughout the first of this three-day conference. … Read More →

23Feb

The long game: Assessing the impact of UN Sustainable Development Goals (SDGs) on commodity sectors

0 Comments

Since the United Nations (UN) adopted the 2030 Agenda for Sustainable Development, industries have started planning for more sustainable practices… Read More →

18Feb

The role of ECAs in the global economic recovery and green transition – The view from SACE

0 Comments

In this article, SACE’s Irene Gambelli discusses the support provided by Italy’s export credit agency to SMEs during and after… Read More →

27Jan

COP26 with Veridapt CEO David Thambiratnam – Finance more, pollute less

0 Comments

Lenders are being asked to allocate more capital than ever to manage risks and seize opportunities, as the world strives… Read More →

31Dec

2021 – A Year in Review with Trade Finance Global

0 Comments

As the clocks struck midnight, we looked back at over 700 articles, handpicking our favourite stories that made the headlines… Read More →

15Nov

UK Export Finance (UKEF) issues largest-ever guarantee for Turkish solar plant made in Britain

0 Comments

UK Export Finance (UKEF), the export credit agency of the British government, has issued its largest-ever financing guarantee to help… Read More →

12Nov

COP26 wrap-up: UK vows to become world’s first ‘net zero-aligned financial centre’

0 Comments

Over the last two weeks, the UK has been at the forefront of some of the biggest announcements to come… Read More →

Latest Sustainability News

17May

Interview: Steven Beck, head of trade finance at Asian Development Bank, on global supply chains, trade digitisation, sustainability

0 Comments

TFG interviewed Steven Beck, head of trade and supply chain finance at Asian Development Bank (ADB), to discuss how the… Read More →

12May

Berne Union Spring Meeting: multiplying risks threaten the fragile pandemic recovery

0 Comments

This week at the Berne Union spring meeting, 74 export credit agencies, multilateral institutions, private banks, and credit insurers met… Read More →

10May

Electronic trade documents coming to the UK: Enigio looks at the impact of digital legislation on bills of exchange

0 Comments

During the Queen’s Speech on 10 May 2022, Prince Charles, standing in for the Queen, announced that the Electronic Trade… Read More →

06May

The promises of the World Trade Organization

0 Comments

Over three-quarters of merchandise exports by the least-developed countries (LDCs) are primary goods.
This places them at a disadvantage in… Read More →

05May

RELEASED: Trade Finance Talks – Trade on a knife’s edge

0 Comments

The latest issue of TFG’s Trade Finance Talks, ‘Trade on a knife’s edge’, is out now!… Read More →

03May

How to adopt a consistent sustainable approach to production

0 Comments

Sustainability is a hot topic around the world, with almost all industries impacted by the need to operate in a… Read More →

03May

TFG Weekly Trade Briefing, 3rd May 2022

0 Comments

Your morning coffee briefing from TFG – Gas from the past: political history haunts energy supply chains amid Russian sanctions… Read More →

27Apr

Editors note: commodity trade finance on the knife’s edge

0 Comments

TFG’s Deepesh Patel highlights the key themes in commodity trade finance for commodity trading week in London…. Read More →

27Apr

Climate change, data, and money – City Week 2022

0 Comments

Here is a quick rundown of City Week 2022’s main themes covered throughout the first of this three-day conference. … Read More →

25Apr

TFG Weekly Trade Briefing, 25th April 2022

0 Comments

Your Monday morning coffee briefing from TFG:
Bank of America will transition to recycled plastic for credit and debit cards beginning… 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