2022 Perspectives for the Public Sector

16 commodities to create economic value, sustainable trade occurs when commercial exchanges of those goods and services generates not only economic value but also social and environmental benefits. More specifically, the incremental principles beyond economic value should include the reduction of poverty and inequality as well as the reservation and reuse of environmental resources. To facilitate more sustainable trade, the banking and finance industry is creating innovative new trade finance solutions that add an ESG component to long-term project and agency finance, including equipment financing and working capital loans. These solutions are helping corporations, financial institutions and governments to achieve their strategic financing objectives while delivering more sustainable outcomes. New solutions are being developed to bring ESG criteria into other popular and valuable areas of finance. For instance, over the past decade, an increasing number of companies have turned to supply chain finance programs to improve the efficiency of their cash conversion cycle and safeguard supplier relationships. Now these programs can also be used to drive the ESG agenda; an assessment of a supplier’s ESG credentials can be used to qualify them for incentive pricing, giving suppliers a financial incentive to improve their sustainability (see case study). Conclusion Climate change will have a direct impact on trade. Moreover, trade clearly has the potential for negative environmental consequences: the integration of climate mitigation and adaptation considerations (as well as monitoring of the social impacts of trade) are essential for global trade to have a more sustainable future. The huge potential benefits of trade in improving ESG outcomes should not be overlooked, however. Already, policies and However, increased trade can contribute to a greater capacity to manage the environment more effectively, specifically by generating economic growth, promoting development, and advancing social welfare. As markets and trade policies become more open, developing countries can gain greater access to technologies that help local production become more efficient and reduce the use of inputs such as energy and water, which have negative environmental impacts. In recent years, many countries have adopted policies that have facilitated greater international trade. Emerging markets have become a globally important source of export activity, accounting for nearly 45% of global exports in 2016 compared with only 25% in 1996. 4 As countries become integrated within the world economy, their export sectors gain increased exposure to developed countries’ environmental requirements. As a result, a virtuous circle develops where higher environmental standards flow backwards along the supply chain, and drive the use of cleaner production processes and technologies. Developing more sustainable trade At the G7 summit in June 2021, G7 leaders agreed on “promoting the transition to sustainable supply chains, and acknowledged the risk of carbon leakage” (where companies move production to countries with less stringent climate policies in order to avoid costs). The leaders pledged to “work collaboratively to address this risk and to align trading practices with their commitments under the Paris agreement.” The G7 leaders also reinforced “a shared vision to ensure the multilateral trading system is reformed, to be free and fair for all, more sustainable, resilient and responsive to the needs of global citizens.” 5 The commitment should be welcomed. But what does more sustainable trade look like? Put simply, if trade is the buying and selling Sustainability: Global Trade as an Ally 4 https://www.federalreserve.gov/econres/ifdp/files/ifdp1278.pdf 5 https://www.consilium.europa.eu/media/50361/carbis-bay-g7-summit-communique.pdf