Introduction to the ICC’s Updated Principles
In a bid to further align global trade with sustainability goals, the International Chamber of Commerce (ICC) released the third wave of its Principles for Sustainable Trade (PST) at COP29 in November 2024. This latest iteration, developed with input from leading banks and industry bodies, builds on previous versions to address the environmental and socioeconomic aspects of trade transactions, offering a comprehensive framework for assessing the sustainability of international trade and trade finance.
The PST now encompasses more sectors and provides refined guidelines for evaluating trade transactions, incorporating feedback from industry leaders and experts who piloted the second wave earlier this year. With trade contributing up to 30% of global greenhouse emissions, this update is timely, expanding upon efforts to make trade a driver for achieving the Paris Agreement targets and the United Nations Sustainable Development Goals (SDGs).
Key Components of the Principles for Sustainable Trade
The third wave of the ICC’s principles introduces specific guidelines under four major pillars, each evaluated on environmental and socioeconomic grounds: Use of Proceeds, Buyer, Seller, and Distribution. By assessing transactions across these pillars, the PST aims to provide a holistic view of sustainability, with each component graded for alignment with sustainable activities.
The ICC has emphasized flexibility in the PST, allowing organizations to adapt the guidelines into their existing processes while still meeting sustainability standards. The Use of Proceeds pillar, a key focus, categorizes trade finance uses into three tiers: “Inherently Aligned,” “Potentially Aligned,” and “Clearly Unaligned,” helping stakeholders quickly identify transactions that meet sustainability goals versus those that don’t.
New Framework for Trade Finance
A significant addition in Wave 3 is the Principles for Sustainable Trade Finance (PSTF), which serves as a cornerstone of the broader PST framework. The PSTF provides guidelines for Green Trade Finance, addressing the end-use of financing by establishing criteria for sustainable trade activities. For example, trade financing directed toward renewable energy, sustainable agriculture, and waste reduction aligns with PSTF’s green finance principles.
The PSTF also introduces specific assessments for socioeconomic objectives, marking a critical step towards transparency and preventing greenwashing. By providing this dual focus, the ICC encourages financial institutions and corporates to evaluate the broader impacts of their trade finance activities, aiming for a balanced approach that encompasses both environmental and social responsibilities.
Methodology and Evidencing Requirements
To ensure rigor in sustainability assessments, the PST outlines clear requirements for evidence. The ICC’s Sustainable Credential Library, which will become accessible in 2025, is set to become a centralized resource for stakeholders, listing pre-approved standards, certifications, and ESG scores that meet ICC’s sustainability criteria. These credentials are expected to streamline the verification process, making it easier for organizations to adhere to the PST and PSTF frameworks.
The principles’ flexibility is designed to accommodate sectors ranging from textiles to technology, allowing organizations to select relevant standards and adjust assessments to suit their specific trade practices. The PST recommends a grading system, where sustainability assessments are divided into four levels: Grade A (highly sustainable), Grade B (partially sustainable), Grade N (unsustainable), and Grade U (uncertain), supporting organizations in transparency and mitigating greenwashing risks.
Focus on Standardization and Transparency in Reporting
Standardized reporting practices are integral to PST Wave 3, aiming to create consistency in sustainability disclosures across sectors. This includes adopting widely accepted frameworks such as the Global Reporting Initiative (GRI) Standards and the Sustainability Accounting Standards Board (SASB) Standards, allowing stakeholders to gauge the sustainability of trade transactions reliably.
The ICC’s guidelines recommend that participants align reporting with recognized international frameworks, ensuring that sustainability claims are substantiated and that information is readily available to relevant parties. For trade finance transactions lacking clarity on end-use, the PST underscores the importance of documentation and visibility within supply chains to verify compliance with sustainability standards.
Expanding Sector-Specific Sustainability Assessments
One of the standout features of the third wave is its sector-agnostic approach, accommodating a broad spectrum of industries. The ICC has expanded its principles to sectors beyond the textiles and apparel industries, the initial focus of Wave 1. Now, businesses from automotive, agriculture, and energy industries, among others, can apply the PST, using sector-specific evidence to verify sustainability. This inclusivity has been a response to feedback from banks and corporates who piloted the previous wave, emphasizing the need for nuanced assessments that consider industry-specific factors.
Furthermore, the ICC recognizes the unique challenges presented by smaller businesses and emerging markets that may have limited access to sustainability resources. Future iterations are expected to incorporate more simplified guidelines to support the broader adoption of sustainable practices across various business sizes and geographic regions.
The Road Ahead for Sustainable Trade
Following the launch of the PST Wave 3, the ICC is calling on participants from across the trade ecosystem to pilot the principles in live transactions and provide feedback. This feedback loop, along with ICC’s collaboration with governments and regulatory bodies, will guide the ongoing evolution of the PST framework, with a goal of releasing the ICC Principles for Social Trade Finance in 2025. By continuously updating the PST, the ICC aims to position itself as a global leader in sustainable trade, setting a benchmark for trade sustainability that aligns with global goals.
With Wave 3, the ICC hopes to foster an industry-wide shift towards sustainability, enabling trade to become a powerful lever for positive change in the global economy.
Source: ICC
