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The ICC Principles for Sustainable Trade - Wave 3 is a comprehensive document developed by the International Chamber of Commerce (ICC) in collaboration with the Boston Consulting Group (BCG). 

https://iccwbo.org/news-publications/policies-reports/icc-principles-for-sustainable-trade/?utm_source=chatgpt.com

It aims to define and establish a universal framework for assessing sustainability in global trade and trade finance, aligning with the Paris Agreement and the United Nations Sustainable Development Goals (SDGs). This third iteration builds upon previous versions to enhance its practical application, scalability, and integration into trade finance operations.

Context and Background

Global trade is a critical driver of economic growth and sustainability, but it also accounts for up to 30% of global greenhouse gas emissions. While numerous sustainability frameworks exist for individual products and industries, there has been a lack of a unified standard to define and measure sustainable trade holistically. The ICC launched its Principles for Sustainable Trade (PST) initiative in 2021, introducing a structured framework for evaluating sustainability across different dimensions of trade.

The first wave (2021) focused on the textiles and apparel industry. The second wave (2023) expanded to include agriculture, energy, and automotive sectors. Wave 3 (2024) now presents an industry-wide approach applicable across all trade sectors, providing a methodology for assessing sustainability across full supply chains.

Objectives of the ICC Principles for Sustainable Trade

The PST framework has been designed with the following key objectives:

• To define sustainable trade and sustainable trade finance in clear and actionable terms.
• To develop a scalable methodology that assesses sustainability across entire trade transactions.
• To provide practical guidelines for banks, businesses, and regulators to integrate sustainability into trade finance policies.
• To ensure that trade finance and supply chain finance become tools for positive environmental and social impact.

To meet these objectives, the Principles for Sustainable Trade Finance (PSTF) were introduced as a dedicated component within the broader PST framework, setting standards for green trade finance, sustainability-linked finance, and social trade finance.

Key Components of the ICC Principles for Sustainable Trade

The ICC's Principles for Sustainable Trade assess sustainability through a four-pillar approach:

1. Use of Proceeds - Evaluates whether trade transactions fund activities that contribute to environmental and socioeconomic sustainability.
2. Buyer and Seller Assessments - Assesses the sustainability credentials of the entities involved in a transaction.
3. Distribution Methods - Reviews the environmental and social impact of transportation and distribution.
4. Evidencing, Safeguarding, and Reporting - Ensures standardisation, transparency, and accountability in sustainability reporting.

Each pillar is assessed independently across two dimensions:

• Environmental Sustainability - Measures factors such as carbon footprint, resource efficiency, and biodiversity protection.
• Socioeconomic Sustainability - Assesses labour standards, social equity, fair wages, and community impact.

Enhancements in Wave 3

Wave 3 incorporates feedback from leading trade banks, corporates, and industry experts to refine the PST framework, making it more applicable and adaptable across industries. The key improvements include:

• Expansion to all trade sectors, rather than focusing on specific industries.
• Development of the Principles for Sustainable Trade Finance (PSTF) to address green and social trade finance explicitly.
• Integration with existing sustainability frameworks, such as the Loan Market Association's (LMA) Green Loan Principles (GLPs) and ICMA Green Bond Principles (GBPs).
• Improved standardisation for distribution assessments, including grid networks, pipelines, and transport methods.
• Creation of a Sustainable Credential Library, consolidating recognised sustainability standards, industry certifications, and ESG scoring tools.

Methodology for Assessing Sustainability in Trade

The ICC recommends a structured grading system to classify trade transactions based on their sustainability performance. Each transaction is evaluated based on available evidence and assigned a grade:

• Grade A - High confidence in sustainability.
• Grade B - Partially sustainable but requires additional verification.
• Grade N - Not sustainable.
• Grade U - Insufficient data to assess.

The methodology ensures that Use of Proceeds assessments are prioritised, as these determine the ultimate environmental and social impact of trade finance activities.

The Role of Trade Finance in Sustainability

Trade finance is a critical enabler of sustainable trade. By providing liquidity and risk mitigation, banks influence the direction of global trade flows. The PSTF guidelines aim to direct financing toward low-carbon and socially responsible trade activities, ensuring that greenwashing risks are mitigated and that financial institutions maintain transparency in their sustainability-linked transactions.

The ICC's Principles for Sustainable Trade Finance (PSTF) include:

• Principles for Green Trade Finance (PGTF) - Focused on financing environmentally sustainable activities.
• Guidance on Sustainability-Linked Trade and Supply Chain Finance - Ensuring that trade finance products align with sustainability criteria.
• Framework for Social Trade Finance - A new initiative aimed at expanding financial inclusion and supporting socially responsible trade.

Reporting, Standardisation, and Compliance

A critical aspect of the PST framework is ensuring that sustainability assessments are transparent, consistent, and verifiable. The ICC promotes adherence to internationally recognised reporting frameworks, including:

• Global Reporting Initiative (GRI) Standards
• UN Global Compact Communication on Progress
• EU Corporate Sustainability Reporting Directive (CSRD)
• Sustainability Accounting Standards Board (SASB) Standards

The ICC is also developing an automated credential verification system, the Sustainable Credential Library, which will integrate third-party sustainability certifications, ESG scores, and regulatory approvals to improve efficiency in sustainability assessments.

Future Developments and Next Steps

The Wave 3 principles represent a significant step forward in defining sustainable trade and trade finance. However, the ICC recognises that further refinement is needed to ensure broader adoption. Key areas for future development include:

• Expansion of the Sustainable Credential Library into an API-accessible platform for automated sustainability assessments.
• Introduction of a multi-tier supply chain assessment methodology to improve transparency beyond immediate trade transactions.
• Development of sector-specific sustainability benchmarks to address unique challenges in industries such as digital services and technology.
• Strengthening of social sustainability criteria, particularly in labour rights, fair wages, and economic inclusion.

The ICC is actively seeking industry feedback to refine the framework, with ongoing pilots and consultations scheduled throughout 2024 and 2025. Key milestones include:

• Pilot programme for Wave 3 principles (Q4 2024 - Q1 2025) with participation from banks and corporates.
• Launch of the ICC Sustainable Credential Library to facilitate broader industry adoption.
• Consultation on the Principles for Social Trade Finance, aimed at enhancing social impact considerations in trade finance.

Conclusion

The ICC Principles for Sustainable Trade - Wave 3 provide a robust, data-driven framework for integrating sustainability into global trade and trade finance. By establishing clear definitions, assessment methodologies, and reporting standards, the ICC aims to drive meaningful progress toward sustainable trade, ensuring that financial institutions, businesses, and policymakers can align their practices with climate action and socioeconomic development goals.

This initiative represents a major advancement in sustainable trade finance, equipping banks and businesses with the tools to assess, report, and improve the sustainability of their trade operations. The adoption of these principles will play a crucial role in shaping the future of global trade, ensuring that it remains a force for economic prosperity while aligning with environmental and social sustainability objectives.

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