Estimated reading time: 5 minutes
Sustainability is one of the most used terms in the trade finance industry in 2023.
While everyone knows what it means, and most know what the challenges are behind implementing sustainable actions, there is a clear issue with implementing tangible solutions.
Trade finance as an industry has an important role in this discussion. Because international trade touches almost all parts of the world, industry-wide changes would have deep ramifications.
But there needs to be an effort to discuss and evaluate case studies and create concrete sustainability plans.
To do this, TFG’s Deepesh Patel spoke with Anirudha Panse, MD & Head of GTB Trade Finance Product Innovation, Global Transaction Banking, First Abu Dhabi Bank (FAB) to discuss their strategies and case studies.
Sustainability at large: The true impact on trade finance
Carbon emissions and the trade finance industry are inherently intertwined. Reports have shown that 80% of carbon emissions are sourced from global trade shipping and transport.
The immense environmental footprint of global trade stems from a complex and global endeavour involving numerous stakeholders, many with different regulations and reporting metrics.
Because there is no single standard or governing body, the sustainability effort for global trade more closely resembles a jigsaw puzzle than a cohesive picture.
However, innovation often stems from seemingly unsolvable challenges.
Panse said, “With these challenges in the background, corporates, governments, regulators and banks in the MENA region have made a significant effort to make trade more sustainable in recent years.”
One of the most visible changes has been the digitalisation of trade. The initial move away from paper-based documents has already helped to substantially cut emissions. Some estimates say that nearly 3 million trees will be saved per year with the passage of the ETDA.
While the ETDA is a common law bill, many countries around the world, including Bahrain, Singapore and Abu Dhabi Global Market are adopting the Model Law on Electronic Transferable Records (MLETR), with others implementing similar laws.
Following initial steps to digitalise trade, further industry action is needed.
According to Panse, while there is still a long way to go, international organisations like the ICC have started to release publications on tangible steps to creating a more sustainable global trade industry, such as their November report on the Wave 1 Framework.
Cautious steps forward: FAB’s journey towards sustainability
As more standards are introduced by organisations like the ICC, banks and corporates are able to implement more sustainable practices into their business.
With this development, Panse said, “FAB is working to support not just the working capital needs of our clients in a conventional, Islamic way, but also in a sustainable way.”
By combining their knowledge of Shariah financing and sustainability, FAB is ensuring that its products are sustainable and accessible across all markets.
FAB’s most common products are increasingly offered with a sustainability focus. From letters of credits to letters of guarantees to basic loans, FAB is ensuring to offer sustainable practices.
Panse believes that one of the most important steps in this process if the new sustainable supply chain finance solution.
As Scope 3 regulations become increasingly important, ensuring sustainability throughout the supply chain is a top priority for FAB and its clients.
While the bank is moving ahead with their sustainable practices, there is an inherent concern to avoid any perception of greenwashing.
FAB has strict systems in place to make sure they are fully committed to walking the walk, not just talking the talk.
“We have a strict governance process in place internally, along with our ESG team, to ensure that we’re making the right decisions when it comes to classifying something as a sustainable trade.”
FAB’s sustainable supply chain finance proposition
FAB was one of the first local banks to offer a fully automated supply chain finance proposition.
Since then, the bank’s efforts has expanded to offer its product to the wider region. And recently, this product has expanded to help with sustainable supply chain financing.
As FAB continues to build on its sustainable supply chain finance proposition, the bank is also collaborating with industry partners. By developing new technologies, Panse said, “We are able to be the trusted financial partner in enabling suppliers to become more sustainable.”
In 2017, FAB became the first bank in MENA to offer a green bond. By providing financial incentives, FAB is providing risk mitigation and encouraging sustainability up and down the supply chain.
Collaboration across the board: The key to progress
According to Panse, there is no such thing as a sustainable supply chain without extensive collaborations.
Oftentimes, SMEs have limited financial and time resources to focus on sustainability issues, as they are focused on providing top-quality products and services. Instead, Panse thinks larger banks and institutions have a responsibility to create awareness around ESG topics.
FAB embodies this idea, as the bank has already hosted numerous roundtables and events with local SMEs to create awareness around their community.
The COP28 strategic pathway partner has set out a six-point agenda for its participation at the climate conference, including:
- Accelerating sustainable finance and advancing the UAE’s development as a green finance hub;
- Supporting its clients and partners with the transition to net zero;
- Growing ESG awareness and adoption among SMEs;
- Advancing effective carbon markets through production innovation and knowledge transfer;
- Advocating for the restoration of natural ecosystems and biodiversity; and
- Empowering individuals from classroom to boardroom to be change agents for positive environmental action.
However, partnerships are not simply focusing on the “E” of ESG within large banks, corporates, and SMEs in the traditional trade sector.
During COVID-19, FAB partnered with pharmacies, and hospitals to ensure quick payment using FAB’s supply chain programme, FABeSCF, allowing them to continue to provide life-saving services.
To Panse, the “SG” is equally as important as the “E”, and are inherently tied together.
A look towards 2024
FAB has a long agenda for 2024, as they want to continue to build on their recent momentum.
But for Panse, there is one consistent, and simple theme for 2024.
Continue an industry-wide call to action.
Panse summarised the strategy, “A call of action for more sustainable regulations, a call to action to raise awareness for the wider banking industry, to move towards a more digital, a more circular economy, and a call for everybody to work together and continue to collaborate.”
