The overwhelming majority of global trade contributes negatively to the United Nations’ (UN) Sustainable Development Goals (SDGs), according to new research, which calls for better guidance for banks and corporates around what sustainable trade should look like.
Released this week by trade data and analytics provider Coriolis Technologies in partnership with MEP Saskia Bricmont and the Greens/European Free Alliance in the European Parliament, Measuring sustainability through trade maps countries’ export and import data against the 17 SDGs to identify negative and positive contributions.
It found that, on a scale of -1 to +1 where -1 means that all trade makes negative contributions, zero is neutral and +1 means that all trade makes positive contributions, world trade scores -0.58, with 80% of global trade by value being unsustainable.
A closer look at the numbers reveals some interesting findings. First, if the SDGs are broken down into their environmental, social and governance (ESG) elements, world trade scores -0.73 with regard to its environmental impact, and an almost entirely negative -0.91 for its social impact. However, when it comes to the ‘G’ in ESG – governance – global trade scores a positive 0.43.
“In other words, the world of trade and trade finance, alongside regulators, has put in place the governance structures to minimise economic risks in the form of employment, economic growth and provisions of basic health, but the price for the environment and for social equality and justice is overwhelmingly high,” the report says. It adds that trade policy can do “significantly more” to promote the basic human rights of trade as represented by the commitment to fair and open trade to promote sustainable cities and communities, responsible consumption, and to shore up the institutions of trade that help peace and justice.
Perhaps unsurprisingly, it is the most advanced economies that have the least sustainable trade, with the G20 nations accounting for some US$18.5tn in value terms in negative contributions to responsible consumption and production (SDG 12).
“These are economies where automotives, consumer electronics and machinery and components are routinely among the top five sectors for both imports and exports,” the report says.
However, while the poorest nations in the world score better, this is because imports are often for subsistence purposes rather than being aimed at luxury or consumption-based markets.
“If we are to meet the ambitious targets laid out at Cop26, we cannot afford to ignore the messages here – that the majority of world trade is unsustainable, and where it is not, it is a symptom of under-development,” the report says.
Defining what is and isn’t sustainable in global trade is a topic that policymakers, financiers and exporters alike have long tussled with. Unlike other asset classes, such as bonds, there are currently no standards that allow financial institutions to properly assess the entirety of the sustainability performance of trade finance transactions, leaving the industry open to accusations of greenwashing.
In its research, which it calls “an initial contribution to the process of creating an automated and consistent mechanism for measuring sustainability”, Coriolis Technologies has built on a methodology established by the UN Economic and Social Commission for Asia and the Pacific, which takes HS codes – the internationally standardised system of names and numbers to classify traded products – and compares them against the 17 SDGs.
For example, trade in tobacco negatively contributes to SDG 3 – good health and wellbeing – while trade in medicine would be a positive contributor. Because the methodology uses HS codes at six-digit level, it is able to distinguish between, for example, a diesel car (870332) and an electric car (870380) or, indeed, a hybrid car (870360), each of which have varying impacts on SDG 7 – clean and affordable energy, and SDG 12 – sustainable consumption.
The methodology isn’t without its shortcomings. For example, while specific goods may not in themselves be sustainable, they can often be used for purposes such as sustainable infrastructure. The same also applies in reverse when it comes to the trade of sustainable goods for non-sustainable purposes. What’s more, Coriolis Technologies adds that the scope to distinguish between resource utilisation for the same product in different countries is limited: “For example, a fruit such as a strawberry produced in the Middle East requires more water and energy to produce than in its indigenous environment,” the report says.
However, industry bodies and regulators are in wide agreement that the SDGs are an adequate taxonomy of reference to enable a comprehensive framework for sustainability, including the International Chamber of Commerce (ICC), which refers to them in its recent position paper on defining and setting common standards for sustainable trade and associated financing.
By providing a quick and simple measurement, Coriolis Technologies has laid bare the enormous amount of work ahead to make global trade more sustainable – but has also provided a call to action for policymakers.
“Since we know the sustainable development goals where the largest negative contributions are likely to be across world trade, we know the levers we should pull,” the report says, adding that too much of world trade contributes negatively to zero hunger, affordable and clean energy, clean water and sustainable cities.
“We also know the sectors which are to blame for the low scores of some countries: automotives, consumer electronics, machinery and components, plastics, iron and steel, and oil and gas. Oil and gas alone contributes some 10% to the value of EU trade, so if we can reduce our dependency on it, we can also reduce the negative contributions to the SDGs,” the report says, adding that the countries that have the worst scores all have automotives in their top five imports and/or exports. As a solution, it puts forward policy incentives towards the use of electric cars and clean energy in order to address the negative role that automotive and fossil fuel trade play at present.
Although Coriolis Technologies admits that the challenge of ensuring trade becomes a positive contributor to sustainable development is not an easy one to address, its development of a model to map out ESG weaknesses in trade should go some way to focusing minds as the trade and trade finance industry attempts to become more sustainable.
The post Wake-up call for ESG as report finds four-fifths of world trade ‘unsustainable’ appeared first on Global Trade Review (GTR).