Contributed by Michael Bickers, Managing Director BCR Publishing Ltd.

The top-rated speakers at ITFA’s 48th annual conference in Porto last month shed light on the current issues and solutions in the trade finance industry, from Basel 3.1 to Electronic Trade Documents Act, to trade corridors; SCF in developed markets; forfaiting in a modern suit of clothes; ESG and sustainability in trade finance and SCF as a new way of life, just to mention a few.

There was a focus on receivables finance in emerging markets, led by Robert Parson, Partner at Squire Patton Boggs (UK) LLP where the importance of this was reflected in the apparent widening of the trade finance gap, exacerbated by the current supply chain issues caused by the post pandemic environment and war in Ukraine. According to the ICC, this stands at US$1.7trn and that 75% of the gap is concentrated in emerging markets. Education is highlighted as very important as there is a significant lack of awareness of receivables finance products in many emerging markets. There also tends to be a need for greater focus on KYC, AML and regard for sanctions in some cases. However, and despite this, an increasing number of deals are being seen in certain regions such as Latin America.

There was a lively panel discussion about sustainability and ESG in trade finance with Johanna Wissing, Director, Credit Suisse/ITFA Head of ESG in the chair.  The central issue in wanting to support sustainable development and ESG in the practice of trade finance is: what do we mean by that, how do we measure sustainability and how do we implement the possible options? Johanna Wissing explained that the ITFA was working on the principles of standardisation that had been agreed with the ICC, which would fit into the regulatory frameworks and into the structure of international trade. The aim, she said, was to bring all the elements of the supply chain together, the product, the company and the country of origin. The ITFA is developing the technology to do this. She added, “So we can harness the technology, we can harness the ambition of ESG and we can also harness what we are measuring in a standardised way right from the word go. It’s enormously exciting to be able to do this.”

It was agreed that trade finance has a big part to play in encouraging sustainable development. Joanna Wissing pointed out that one in five dollars of trade finance is used to make contributions to sustainable development goals. “Now that the regulators are in place, we can use trade finance to make a difference in the world, which means that around US$13.7tn could be made sustainable if we just shift the dial a little bit.  This is something we can all do, but we have to standardise the metrics.”

Marilyn Blattner Hoyle, Global Head of Trade Finance at Swiss Re Corporate Solutions, agreed with this but was concerned that such metrics should not be used to ignore the wider context. “We cannot distort the benefits of trade,” she said. “We must respect the multi-dimensional aspect of trade,” and cited the example of tourism which has an obvious carbon footprint but benefits emerging economies.

Anil Walia, Director of Deutsche Bank’s EMEA Supply Chain Payables, commented: “What must be added is the cost of not being sustainable. So, we have to measure the cost to the environment; adding the opportunity lost. This is where this journey needs to go.”  Rebecca Harding, Founder of Coriolis Technologies, said that we not only need to know what we’re measuring, we also need to know what we’re measuring against.

The discussion later moved on to the subject of asset management and sustainability. Johanna Wissing said that there are so many different sustainability ratings out there that it is not easy to know which ones to use. “There are three important things: Firstly, what are you doing, secondly what are you measuring and thirdly how do we manage the complexity of all this, so that you understand which one we can agree on.  The core problem for those in trade finance is being able to look at the detail in the supply chain. That is the challenge.”

Anil Walia added another dimension to this discussion saying that we are all operating within narrow supply chains, but those supply chains will change dramatically. “The technology we use today we will not be using in 2050, so this is where trade finance needs to go. How much trade finance is important in this space is unbelievable. Because it has a huge footprint, we can help in different ways to change the financial models.” He then pointed to the EU which he said has brought in legislation that the buyer is responsible for monitoring and reporting on the sustainability practices of the supplier, which means, he says, that we are going to see a new kind of KYC.

Earlier on Surath Sengupta, Managing Director, HSBC Global Trade and Receivables Finance, said that supporting sustainable development was so important that it had become part of the bank’s DNA. “Whether we are investing or financing, it is in everything we do, and we’re not just interested in climate issues, ESG is also becoming more important for us.” He added that it is the consumers who are going to be pushing for this as well, citing the buying habits of some of the younger generation.

These discussions came back to a recurring theme, which is the need to be flexible. Anil Walia of Deutsche Bank, for example, said that the definition of what is sustainable has to be flexible, and that it cannot be static. “You cannot simply say this is a green company and that one is not. Companies change.” He explained that the bank has a six-month program covering 400 suppliers in Europe for whom it provides finance, and which the bank will monitor. Each supplier has an ESG score, but this doesn’t become rigidly fixed. He said: “As we monitor them, the score moves up or down, so as the score moves up the supplier gets a discount.” Suratth Sengupta underlined another point, which is that any sustainable metrics which are agreed-upon have to take account of the impact upon the everyday lives of people, saying: “You cannot ignore the social impact of climate solutions.” The response to such concerns was, yes but you have to start somewhere.

During the Conference, Sean Edwards was re-elected as ITFA Chair.

Another highlight of the Conference was the Great Gatsby gala dinner which transported all people back to the roaring twenties.

ITFA’s next annual conference (49th) will be in Abu Dhabi in 2023.

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