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Estimated reading time: Five minutes
Sustainability is one of the most popular terms in the trade finance industry in 2023.
Everyone knows what it means and most know what the challenges are behind the implementation of sustainable actions, but the implementation of concrete solutions is clearly There is a problem.
Trade finance as an industry plays an important role in this discussion. Because international trade touches nearly every region of the world, changes across the industry will have profound effects.
However, efforts are needed to discuss and evaluate case studies and develop concrete sustainability plans.
To do this, TFG’s Deepesh Patel sat down with Anirudh Panse, MD, Head of GTB Trade Finance Product Innovation, Global Transaction Banking, First Abu Dhabi Bank (FAB). and discussed its strategies and case studies.
General sustainability: the real impact on trade finance
Carbon emissions and the trade finance industry are inherently intertwined. According to the report, 80% of carbon emissions come from global trade transport and transportation.
The enormous environmental burden of global trade results from a complex, global effort involving many stakeholders, many of whom have different regulatory and reporting standards.
Without a single standard or governing body, addressing global trade sustainability is more like a jigsaw puzzle than a complete picture.
However, innovation often emerges from seemingly unsolvable challenges.
“Against these challenges, businesses, governments, regulators and banks in the MENA region have made significant efforts in recent years to make trade more sustainable,” Pensee said.
One of the most visible changes is the digitalization of trade. Initial efforts to eliminate paper-based documents have already contributed to significant emissions reductions. Some estimates suggest that with the passage of ETDA, nearly 3 million trees will be saved annually.
Although the ETDA is a common law bill, many countries around the world have adopted the Model Law on Electronic Transferable Records (MLETR), including Bahrain, Singapore, and the Abu Dhabi Global Market, and other countries have implemented similar laws. I am.
Further industry action is needed following the initial steps to digitize trade.
Although there is still a long way to go, international organizations like the ICC have published publications on concrete steps towards building a more sustainable global trade industry, such as its November report on the Wave 1 Framework, Pensee said. It is said that they have begun to announce.
Cautious progress: FAB’s journey towards sustainability
As more standards are introduced by organizations like the ICC, banks and companies will be able to implement more sustainable practices into their businesses.
With this development, Mr. Pensee said, “FAB is committed to supporting the working capital needs of its customers not only in traditional Islamic ways, but also in sustainable ways.”
By combining Sharia financing and sustainability knowledge, FAB ensures that its products are sustainable and available in all markets.
FAB’s most common products are increasingly offered with a focus on sustainability. From letters of credit to letters of guarantee to basic loans, FAB guarantees to provide sustainable practices.
Panse believes that one of the most important steps in this process is new sustainable supply chain finance solutions.
With the increasing importance of Scope 3 regulations, ensuring sustainability throughout the supply chain is a top priority for FAB and its customers.
Although the bank is committed to sustainability, there are inherent concerns about avoiding the perception of greenwashing.
At FAB, we have a rigorous system in place to ensure that we are committed to doing more than just talking.
“We have rigorous internal governance processes in place with our ESG team to ensure we make the right decisions when classifying something as a sustainable transaction.”
FAB’s sustainable supply chain finance proposal
FAB was one of the first local banks to offer a fully automated supply chain finance proposition.
Since then, the bank’s efforts have expanded to offer products to a wider area. And recently, this product has been expanded to help finance sustainable supply chains.
As FAB continues to advance its sustainable supply chain finance proposition, it also collaborates with industry partners. By developing new technologies, Pensee said, “we can become a reliable financial partner in increasing the sustainability of our suppliers.”
In 2017, FAB became the first bank in MENA to offer green bonds. FAB provides financial incentives to reduce risk and promote sustainability throughout the supply chain.
Full collaboration: the key to progress
According to Pensee, there is no such thing as a sustainable supply chain without extensive collaboration.
Small businesses often have limited financial and time resources to focus on sustainability issues because they are focused on providing the highest quality products and services. Instead, Pense believes large banks and institutions have a responsibility to raise awareness about ESG topics.
FAB embodies this idea, and the bank already hosts numerous roundtables and events with local small and medium-sized businesses to increase community awareness.
COP28 strategic pathway partners have set a six-point agenda for participation in the climate conference, including:
- Accelerate sustainable finance and advance the UAE’s development as a green finance hub.
- Supporting clients and partners in their transition to net zero.
- Expanding ESG awareness and implementation in small and medium-sized enterprises.
- Promoting effective carbon markets through production innovation and knowledge transfer.
- Advocate for the restoration of natural ecosystems and biodiversity.and
- From the classroom to the boardroom, we empower individuals to become agents of positive environmental behavior change.
However, the partnership does not simply focus on the ‘E’ of ESG within the traditional trading sectors of large banks, corporates and SMEs.
During the COVID-19 outbreak, FAB partnered with pharmacies and hospitals to use FAB’s supply chain program, FABeSCF, to ensure prompt payments and enable them to continue providing life-saving services.
For Pensée, “SG” is as important as “E” and they are intrinsically connected.
Towards 2024
FAB has a long agenda ahead of 2024 as it hopes to build on recent momentum.
But for Pensee, 2024 has one simple, consistent theme.
We continue our call to action across the industry.
Mr. Pensee summed up the strategy: “A call to action for more sustainable regulation, a call to action to raise awareness of the wider banking industry, a call to action to move towards a more digital, more circular economy, and for everyone to continue working together. “A call to cooperate.” ”
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