90% of UK banks and 56% of Swiss banks have lost business in the trade finance industry due to lack of decarbonisation financing terms, according to research from Pole Star. The maritime, governmental, and financial technology solutions company is calling for environmentally-driven regulation for banks falling behind on sustainability and carbon emission reductions.
In conversation with Simon Ring, head of maritime business development and B2B at Pole Star, Finextra questioned the need for banks to transition their sustainability strategies when it comes to trade finance. Pole Star deals with trade finance and compliance, often coordinating their services with environmental and sustainability goals.
Ring explains that it is in banks’ best interests to adapt to a greener industry due to the measurable and monitorable aspects of sustainable trade and commodity finance and the reductions in the interest rates for greener transactions.
“I think future platforms will incorporate all of the fundamentals that the banks and corporates need, and a big part of that will be around digitalisation, payments trade, speed, automation, and sustainability. The agenda is already overwhelming.”
There has been an increased demand throughout the industry for financial institutions to screen carbon emissions and act more sustainably. The pressure on large corporations to reduce emissions has also led to numerous greenwashing campaigns that falsely indicate performative sustainable action.
When it comes to corporate ESG scoring under the Paris Climate Accord, Ring notes that the general consensus around corporate ESG scoring is that the adoption of an extended KYC process works well, as most financial institutions work with corporate clients to enable the start of this transition.
In fact, he adds, “there are many ways that the industry can benefit from taking the greener route. You can see sustainability coming through the objectives of companies, certainly towards the trade markets and supply chains.”
Ring continues that the integration of compliance, sanctions, and sustainability criteria in the financing process is a critical shift.
“The transition needs to be phased over immediate pain points. There’s quite a lot of regulation that applies to this area. Those regulations are going to be critical; making changes is just one way of making people react. Sometimes this has a magical effect on certain companies and industries.”
UK and Swiss banks are missing out on favourable rates for financing, according to Ring, as more advanced and dynamic European banks which are further ahead on the journey to where sustainable trade needs to be.
Touching on Pole Star’s position in enabling the shift towards greener financial practices, Ring observes: “Technology is not the issue, adoption is the issue. If we get to a point where we work with many of these big actors and players and take them route to transition, and they can implement on a stage by stage basis, that’s how you get to the end goal.”
Finextra recently announced its fifth Sustainable Finance Live conference and hackathon, scheduled to take place on 29 November. For more information and to register for this event, please visit the event page here.