Trade’s sustainability challenge
The majority of world trade is unsustainable, and where it is not, it is a symptom of under- development, says trade economist Rebecca Harding. She shares her methodology for a trade sustainability score and demonstrates why trade policy needs to change
W
hat happened to the ambitions of COP26? In December 2021, analysts and commentators
alike were talking about 2022 as though it was likely to be the most important year for sustainability since the Paris Climate Accords. Policymakers set ambitious net-zero goals, there were further bans on deforestation and targets to reduce the amount of methane. Alongside this, EU regulators in particular
introduced stringent mandatory reporting requirements in the form of the Sustainability Financial Disclosures Regulation and the EU taxonomy, as well as in the form of the EC’s proposal for a law on corporate sustainability obligations – known as the EU Supply Chain Law – expected to be enforced in 2025. By 2023, there will be requirements to report on both the ‘E’ and ‘S’ aspects of ESG (Environment, Social and Governance) criteria. The Security and Exchange Commission has similarly announced its intention to make sustainability reporting mandatory.
46 The crisis in Ukraine initially diverted
attention away from this focus on sustainability. However, the EU’s reliance on Russia for oil and gas in particular has put a spotlight on the need to source energy from alternative suppliers, as well as from alternative means. Financial transactions with Russia are now affecting the types of goods traded as well as individuals and entities. As a result of all this, the ‘G’ in ESG has increased in importance as well. Yet the ‘how’ of all of this remains vague.
The International Chamber of Commerce’s joint position paper on measuring sustainable trade puts forward a proposal to use the Sustainable Development Goals (SDGs) as a framework for the approach to financial reporting. This is a useful framework, yet there is little guidance on exactly what needs to be measured, how it aligns with the SDGs and, most importantly of all, the base unit of measurement. It looks first at the challenges of measurement, and then looks at how to
measure trade flows between countries, both within the EU and between the EU and the rest of the world, in a consistent way, using the match of product Harmonized System (HS) codes (those used in international customs and excise records as a means of allocating tariffs and duties), to the well- known SDGs as illustrated in the 17 SDG icons (see Figure 1).
Measuring ESG in practice All countries have one thing in common – they trade in goods. So if it is possible to match the product or service to these SDGs, then a picture of the sustainability of a country through its profile of international trade can be drawn. The concept of the SDG is important because the regulations that are being developed are all based on these in one form or another – it is an agreed, standardised starting point, since both the definition of a product and of the SDGs are already agreed.
Photography: Alamy
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