Banks Face Trade Finance Losses Due to Insufficient Decarbonization Efforts
A recent study by Pole Star reveals that 90% of UK banks and 56% of Swiss banks have forfeited business opportunities in the trade finance sector due to inadequate decarbonization financing terms. The maritime and financial technology firm is advocating for environmentally focused regulations to support banks lagging in sustainability and carbon emission reduction initiatives.
In an interview with Simon Ring, Pole Star’s head of maritime business development and B2B, the necessity for banks to revamp their sustainability strategies within the trade finance landscape was discussed. Pole Star’s expertise in trade finance and compliance aligns closely with environmental and sustainability objectives.
Ring emphasizes that it is crucial for banks to evolve in response to a greener market, citing measurable benefits in sustainable trade and commodity finance, including lower interest rates for eco-friendly transactions. He stated, “Future platforms will likely integrate essential components banks and corporations require, with significant emphasis on digitalization, payment processes, speed, automation, and sustainability. The agenda is already quite extensive.”
The industry is experiencing heightened demand for financial institutions to monitor carbon emissions and adopt more sustainable practices. This pressure on large corporations to minimize their environmental impact has also led to instances of greenwashing, where misleading claims are made about sustainable actions.
Regarding corporate ESG scoring in line with the Paris Climate Accord, Ring points out that the implementation of an extended KYC (Know Your Customer) process can significantly aid financial institutions in facilitating their clients’ transition toward sustainability.
“There are numerous advantages for the industry in pursuing a greener path. Sustainability is increasingly evident in corporate objectives, especially in trade markets and supply chains,” he noted.
Ring further emphasizes the importance of integrating compliance, sanctions, and sustainability criteria into financing processes, marking this as a vital transformation.
He remarked, “The transition must address immediate challenges. The existing regulations play a pivotal role; effective changes can often prompt swift reactions from companies and sectors.”
According to Ring, UK and Swiss banks are missing out on more favorable financing rates, with other European banks showing greater advancement in sustainable trade practices.
Reflecting on Pole Star’s role in facilitating this transition to greener financial practices, Ring stated, “The challenge lies not in technology but in adoption. Our goal is to collaborate with major players, guiding them through a phased transition that enables effective implementation at each step."
For those interested in sustainable finance, Finextra recently announced its fifth Sustainable Finance Live conference and hackathon, set to take place on November 29. To learn more and register for this event, please visit the event page here.