ICC has published its ICC Principles for Sustainable Trade: Wave 3, which provides a frame to assess both the environmental sustainability of a transaction, and how it supports socio-economically sustainable development. The principles are designed to support business in meeting both the Paris Agreement objective of limiting global warming to 1.5°C above pre-industrial levels, and the UN Sustainable Development Goals.
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Why is trade important for sustainable development?
Global trade represents as much as 30% of all carbon emissions. It is therefore imperative that trade
- transforms itself into an engine for the implementation of the Paris Agreement and for sustainable development and
- becomes a facilitator of sustainable practices across international, sectoral and enterprise levels.
Trade must become an engine, driving the global implementation of the Paris Agreement.
The growing interest in environmental, social and corporate governance (ESG) provides a beacon of hope for change. Yet, this interest brings with it a greater demand for precision and clarity on what constitutes sustainable international trade and sustainable trade finance.
What are the barriers to sustainable trade?
Each trade transaction connects numerous parties across the globe, transporting any good to any country, via any means. The distinct nature of each transaction often means there is no standardised framework that accurately assesses sustainability across the entire transaction.
This is further complicated by the fact that there are multiple definitions of sustainability, as well as multiple means of evidencing it. The lack of standardisation hinders the growth of sustainable trade finance and can even confuse or distract efforts to promote increased climate action and sustainability.
Clarification is needed to avoid greenwashing, to align international trade and trade finance with the goals of the Paris Agreement, and to bridge the finance gap to reach these goals.
How is ICC enabling sustainable trade?
ICC embarked on a project in 2021 to address this gap, with the aim to:
- Increase the role of global trade in helping businesses meet the Paris Agreement of limiting the global temperature increase to 1.5°C above pre-industrial levels
- Help banks recognise and set standards for sustainable trade and sustainable trade finance through widely accepted definitions
- Encourage the production of sustainable goods through increased access to financing
- Enable greater investor access to sustainable trade
The trade finance market has an all new sustainability framework.
What’s new in Wave 3 of the ICC Principles for Sustainable Trade?
ICC has incorporated invaluable feedback from both industry leaders and pilot participants, and has evolved the framework into an implementable programme that caters to the needs of all sectors.
Relative to Wave 2, Wave 3 focuses on:
- Integrating newly developed Principles for Sustainable Trade Finance (PSTF), which enhance the Use of Proceeds assessment of the Principles for Sustainable for Trade by setting thresholds and assessments within trade finance to ensure alignment with established frameworks whilst enabling more flexibility in evidencing sustainability
- Expanding the framework to include all sectors, providing nuanced assessments based on sector-specific evidence
- Strengthening the Distribution Assessment to cover grid networks, pipelines
,and different transportation methods - Updating the Sustainable Credential Library to consolidate recognised standards, conventions, and ESG scorers
- Simplifying and expanding the evidencing process by providing clearer guidance on acceptable forms of evidence, to ensure the framework is more accessible and less burdensome, including for SMEs
- Enabling the integration of any regional taxonomies, where appropriate, allowing for greater applicability across diverse markets
Our goal? Evaluate the sustainability of trade in an accessible, standardised and automated way
How do the ICC Principles address the need for standardisation in sustainable trade?
In our work, we utilise existing resources and information to provide grades across an entire trade transaction in terms of multiple dimensions of sustainability and intend for international transactions to be transparently and consistently compared.
The principles leverage existing expertise and industry standards to assess trade finance transactions across four “components of trade” the “use of proceeds”, “seller”, “buyer”, and “distribution”. They are in effect a 4 x 2 matrix, showing the sustainability of each of the four components of a transaction across the two dimensions of sustainability, namely environmental and socio-economically sustainable development.
How were the ICC Principles for Sustainable Trade developed?
The process of constructing these principles has brought together stakeholders from trade banks, corporates, technology players and Boston Consulting Group to reach an agreed common definition of sustainable trade and sustainable trade finance, establish a mechanism to measure and assess the sustainability of trade according to these definitions, and support the industry in adopting this framework.
Previous milestones
Positioning paper on Standards for Sustainable Trade and Trade Finance (2021)
ICC developed the first-ever industry taxonomy to define what constitutes a sustainable trade finance transaction — filling a major gap in existing practice within the financial sector. The Standards for Sustainable Trade and Sustainable Trade Finance positioning paper was launched in 2021 as an initial step to developing a tool that is both robust and workable from an industry perspective.
Wave 1 Framework for Sustainable Trade and Sustainable Trade Finance (2022)
A minimum viable ‘Wave 1’ framework was launched in November 2022 and assessed both the environmental sustainability of a transaction, and how it supports socio-economically sustainable development. In tandem, a pilot scheme was launched in the textiles industry, with participants applying the framework to real transactions to understand what works and what could be improved in future versions of the framework.
Principles for Sustainable Trade: Wave 2 (2023)
The Wave 2 Principles were designed with usability in mind, while simultaneously improving reach, applicability, and rigour. Relative to Wave 1, Wave 2 has focused on expending the scope to include three new sectors, adding rigour through a more granular grading system, allowing easier automation, by incorporating machine-readable sources of evidence and including a “distribution” component.
Principles for Sustainable Trade Finance (2024)
Developed in collaboration with BCG and leading trade banks in 2024, ICC provides a consensus set of principles that define sustainable trade finance products, offering clear, transparent, and consistent guidelines to enable banks, corporates and investors to effectively channel capital towards sustainable and inclusive trade finance facilities while mitigating the risks associated with greenwashing. These principles fit within the broader Principles for Sustainable Trade.
What’s next?
Alongside the launch of the report, a pilot programme is ongoing to test its applicability in the real world. This collaborative approach will ensure that the principles remain practical, scalable, and reflective of industry needs. In addition, ICC is launching a survey designed to gather further insights and feedback from industry professionals.
ICC will set out its findings from the pilot, as well as how it will use these results to improve its use and applicability. We will develop this work further and provide the necessary practical support for its implementation.
Companies that may be interested in participating in the pilot process are invited to reach out to the ICC team for further details.
