ECONOMIC UPDATE: SUSTAINABLE TRADE A
fter a year dominated by the pandemic, the focus in 2021 has returned to where it was when 2020
began: how do we make everything we do in business greener, fairer and more viable in the future?
As policymakers, businesses and banks everywhere look forward to a post-Covid-19 world, there is a sustainability-framed sense of purpose creeping into fiscal recovery measures, trade policy and investment that was absent when the world was recovering from the global financial crisis of 2008−2009.
While this is to be welcomed, it is important to distil what might look good in financial and governance reporting with what is actually happening on the ground and what measures are in place.
Investor appetite and government policies The EU’s €750bn recovery fund agreed in July 2020 is likely to contain at least €225bn for green bonds, and investors expect €500bn in issues this year to create a green recovery.1
Estimates of the growth in
so-called ‘green’ investing vary, but global environmental, social and governance (ESG) funds have undoubtedly been the big winners over the past year. According to data from Morningstar, Global ESG fund inflows increased from US$165bn in 2019 to US$350bn in 2020,2
under management in sustainable funds standing at a record of almost US$1.7trn by the end of the year.3
By 2022, climate-related disclosure by large corporates will be mandatory in the UK, the EU has already introduced sustainability disclosures from March 2021,4
and in the
US, President Biden gained office on a promise to integrate sustainability into every area of government policy, including the tariff regime. In September 2020, New Zealand announced that it would be the first country to introduce sustainability financial reporting requirements,5
possibly as early
as 2023. With as many as 78% of major European businesses alone reportedly falling below acceptable disclosure standards on the climate risk they pose,6 regulatory changes are much-needed steps towards cleaning up the balance sheets of large corporates.
There is a big issue with the policies so far, however. Sustainability is not just about climate change. While an important and necessary part of sustainability, the United
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Nations Sustainable Development Goals cover society and human conditions as well. ‘Green’ issues and impacts are perhaps easier to measure, and one could argue that we need to start somewhere.
Trade data is a good place to start because it shows us the scale of the problem. Trade in products associated with sustainable development (negatively or positively) is at the core of any new reporting that is introduced, but it is also likely to be a major force for change, as tariff regimes will increasingly start to penalise non-sustainable sectors following the lead taken by the US administration.7
Countries themselves clearly have a lot to do, as the following data shows.
Tropical hardwood data Take illegal logging as an example. Everyone accepts that the destruction of rainforests cannot continue, and trade in logs associated with deforestation is illegal. Anyone involved with tropical hardwood harvesting, processing, or distribution or sales activity that has links with deforestation is liable for prosecution. Yet the process continues because people’s livelihoods in the world’s poorer communities rely on short-term activities that destroy their long-term future. Meanwhile, consumers in bigger markets continue to demand the products of illegal logging, making this a vicious circle that is hard to break.
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China India
Japan
Vietnam Indonesia France
Netherlands
Republic of Korea Belgium Germany
Figure 1: Trade in tropical hardwood not elsewhere specified – top 10 flows by imports globally (US$) and mirrored differences (%), 2019
Imports 2019 (US$m)
$2,081.6 $419.8 $39.8 $29.6 $29
$21.8 $21
$18.2 $15.8 $15.2
Exports 2019 (US$m)
$13 $3 $0 $5
$14 $2
$13 $0
$26 $5
Imports mirrored difference (%)
-0.7 15.7 3.3
621.8
No data 10.3 -1.0 0.3
13.7 192.0
Exports mirrored difference (%)
4.5 2375.6
No data 36392.5 1959.6 119.7 63.8 0.5
100.2 62.1
Source: Coriolis Technologies
Figure 2: Trade in rough hardwood not elsewhere specified – top 10 flows by imports globally (US$) and mirrored differences (%), 2019
Imports 2019 (US$m)
China
Areas NES India
Canada Egypt
with the total assets
Indonesia Germany
China, Hong Kong, SAR Belgium Austria
$1,006.4 $590.9 $376.8 $69
$46.7 $42.3 $39.9 $37.1 $35.5 $21.2
Exports 2019 (US$m)
$6.7 $.08
$92.1 $73.9 $.03 $4.3
$59.4 $3.8
$96.1 $16.7
Imports mirrored difference (%)
12.1
No data 12.8 13.7 -0.01 1.5
44.5 24.3 35.2
152.4
Exports mirrored difference (%)
174.2
No data 66.0 84.4
No data No data 17.6 37.0 9.5
158.6 Source: Coriolis Technologies
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